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China started selling yuan-denominated sovereign bonds in Hong Kongfor the first time on Monday, testing international demand for itscurrency with the $879 million issue as it moves to widen the yuan’sexposure and appeal to markets abroad.
Bank of Chinaand Bank of Communications, the two lenders managing the 6 billion yuansale, said in news releases on Monday that the two-year bonds wouldhave a yield of 2.25 percent, and the three-year bonds would yield 2.7percent — higher rates than those offered to investors on the mainland.
Although no information was immediately available about how wellthe bonds were selling, analysts expected retail investors in Hong Kongwould be interested in them.
The bonds are open to subscription until Oct. 20.
ZhiMing Zhang, a currency analyst at HSBC in Hong Kong, cited investors’“bullish feelings on the yuan,” even if officials in Beijing are notexpected to allow the currency to appreciate until exports recover.
TheChinese yuan, also known as the renminbi, does not float freely againstother currencies, but has its exchange rate set by the Chineseauthorities.
U.S. officials have long called for a freer floatfor the yuan, since keeping it low gives Chinese exports an advantageagainst goods denominated in other currencies.
But the debt salealso faces hurdles. It is limited to investors who have renminbiaccounts in Hong Kong banks, which curtails potential demand.
HongKong, the former British colony that has been a special administrativeregion of China since 1997, has its own currency, the Hong Kong dollar,which is pegged to its U.S. counterpart.
And Hong Kong investors,wary after a scandal involving Lehman Brothers bonds last year, aremore conscious of risks and have been subscribing to bond issues moreslowly than they used to, Mr. Zhi said.
The sovereign bonds areunsecured, and are “backed by the full faith and credit of the CentralPeople’s Government of the People’s Republic of China,” according tothe bank news releases Monday.
China’s National Day, themainland equivalent of the Fourth of July in the United States, will becelebrated Thursday, and the timing of the sale may be an attempt tocapitalize on patriotic sentiment among local investors.
Thehigher yields in Hong Kong — compared to mainland yields of 1.82percent on two-year bonds, and 2.31 percent for three-years — shouldalso help shore up demand.
In July, China made three government bond sales, and fell short of its targets each time.
Atthe ceremony kicking off the bond sale, Vice Finance Minister Li Yongsaid he believed “the yuan bond market will continue to develop and itwill develop very quickly.”
Still, Mr. Zhi said he did not expectBeijing to make any further moves to introduce yuan-denominated bondsinternationally after the sale, whose results will be announced Oct. 22.
Chinahas been taking steps to promote the yuan in international markets thisyear, as the U.S. dollar has weakened and Beijing’s foreign currencyreserves have slid in value.
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