With China looking to open up an offshore renminbi debt market, Linklaters was instructed by the People’s Bank of China on its debut worldwide bond sale.
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In fact, China’s reform pace has never stopped.
RMB is the official name of the Chinese currency, which is also referred to as the yuan. Until recently, bond yields in China typically have been higher than offshore rates. Andrew Carmichael, a partner at the law firm Linklaters, said that the potential inclusion of the RMB in the basket will mean central banks will need to take RMB into account for reserves purposes and will need access to it for purchases and sales of and hedging of transactions in SDRs, leading to an increased and institutionalised demand for the RMB. Foreign funds taking stock of their riskier assets after a volatile summer “would like to see how [these bonds] perform before jumping in again”.
“If the (U.S.) Federal Reserve doesn’t raise interest rates by the end of this year, the yuan may rise to as much as 6.3 per dollar; otherwise it can weaken to as much as 6.45”.
The instruction follows a string of advisory roles for capital markets deals being marked at London Stock Exchange listing ceremonies in London this week to coincide with President Xi Jinping’s first state visit to the UK.
Dim sum bond issuance has dropped significantly this year with volumes in the first nine months amounting to 139 billion yuan ($21.91 billion), only half that during the same period in 2014, according to Thomson Reuters statistics.
The news on China, however, has drawn particular notice both in light of the Treasury Department’s years-long stance regarding Beijing’s currency policies, as well as the ongoing slowdown of the Chinese economy and the sharp devaluation of the Renminbi this past August.
While those outflows tapered to $US317 million in September, the results compare with inflows of roughly $US67 million in July.
The Chinese yuan now is the world’s fourth most common payment currency. “Valuation-wise, this is considered attractive since 10-year onshore Chinese government bonds yield only 3%”, wrote Veneau.
The country’s foreign exchange reserves, which are seen as the foundation to support a strong currency and to cover the foreign debt, suffered an unexpected decline in August, as the central bank sold dollars to boost the yuan.
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Perhaps most significant was the United Kingdom government’s refusal to toe the USA line regarding the China-backed Asia Infrastructure Investment Bank (AIIB).
