Dim Sum Bond Market Continuing to Evolve: Moody’s

The offshore rennminbi (RMB) or dim sum bond market continues its evolution as an alternative asset class to US dollar (USD) bonds, as well as an alternative funding source to USD bonds or onshore RMB bonds for Chinese issuers, according to Moody’s Investors Service.

“Currency appreciation has been a short-term driver, but as the offshore RMB bond market becomes larger – with increasing diversity in terms of investors and issuers – the currency element will progressively fade out as the dominant factor,” said Ivan Chung, a Moody’s vice president and senior credit officer. “However, this transition could take time.”

Chung was speaking on dim sum bonds during a panel discussion on ‘Primary Market Developments’ at the 4th Offshore RMB Markets Conference of the Asia Securities and Financial Markets Association (ASIFMA) in Singapore on 13 March.

“A bond issuer is still inclined to issue USD bonds, which is an established market that has more liquidity and an appetite for longer-tenor notes,” said Chung.

“The current features of the offshore RMB market – weaker covenants and disclosures, as well as shorter tenors – make it less attractive in encouraging wide participation from investors, unless total returns are higher, such as additional gains from RMB appreciation.”

However, given the gigantic size of Chinese global trade as well as China’s commitment to internationalise the RMB, offshore RMB assets have a strong potential to become an international asset class or part of sovereign reserves.

“These are the fundamental key drivers in the development of the offshore RMB market,” said Chung.

Moody’s expects increased issuance from Chinese issuers in the offshore RMB market this year; firstly due to continuing tightness in the onshore credit market; and secondly an expectation of further liberalisation of Chinese capital account regulations that will facilitate tapping of the offshore market.

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