What Is a Dim Sum Bond?

Dim sum bonds are renminbi-denominated bonds issued in Hong Kong. They are also called "dim sum bonds" because they are small compared to the entire RMB bond market. So far, only two foreign companiesMcDonald's and Caterpillarhave issued "dim sum bonds" in 2010. In the latest news in December, Russia's second largest bank plans to issue a RMB-denominated "dim sum bond" institution, which reflects China's growing position in the financial market.

Dim Sum Bonds

Dim Sum bonds are bonds issued in Hong Kong and denominated in RMB. And debt in China

Dim Sum bonds eventually achieved returns in 2012, but the return was only 7.1%, while the average return on investment-grade U.S. dollar bonds in Asia (except Japan) exceeded 10%, and the returns on high-yield bonds exceeded 20 %. for

The background to the creation of dim sum bonds is China's vigorous promotion of the internationalization of the renminbi and the international status of the currency. One of the important steps is to let the RMB go global, let it circulate overseas, and eventually make it internationally important.

There are three factors that make McDonald's issue dim sum bonds a good choice. First, the interest rate on Dim Sum bonds is very low, and the three-year interest rate is only over 1%.

The big trend is difficult to violate. International investors are desperately cutting their heads to squeeze into the BRIC countries. Among them, China and Brazil are the most popular and are currently popular investment destinations. Who calls so many dollars and so cheap? And European and American countries seem to be slumped one by one? That is why the internationalization of the renminbi is going up against the tide, knowing that it cannot be done. But it cannot be said to be ineffective. Everyone becomes willing to hold RMB. But currency is not a stock after all, and holding it alone will not bring any return, of course, except for appreciation. Therefore, foreign RMB holders are looking for investment channels and cannot. In fact, everyone is holding the renminbi and looking up at China's investment opportunities.

Of course, the most ideal method is to allow offshore RMB directly

2012 is the first year of dim sum bonds. The market believes that there will be more in-depth development in the future, and more institutions will participate in and benefit from it. But the dim sum bond market will not merge with the domestic bond market to any degree, at least not for the foreseeable future. Obstacles mainly come from the formation mechanism of the domestic bond market, which is almost entirely subject to the government, as described in the book by Red Capitalism (By Carl Walter and Fraser Howie), which is completely different from the price formation mechanism of dim sum bonds abroad. In addition, capital controls will not be relaxed easily at present, which is also closely related to the price formation mechanism in the domestic financial market. Therefore, the dualistic words of the bond issuance and price formation mechanisms will be a feature of the future. This also includes the domestic and overseas deliverable RMB exchange rates. Of course, the irregular pattern of the market has also created opportunities for some people and institutions. It has been analyzed above, so don't say much. Let's go and see.