Finance联社 September 29 news (Editor Li Xiang): Since the beginning of the year, Chinese overseas bonds have performed well in both the primary and secondary markets. In terms of issuance scale, according to the latest statistics from Finance联社, as of September 29, this year's cumulative issuance scale has exceeded the $100 billion mark, reaching $106.774 billion, a significant increase of 42.47% compared to the same period last year. In addition, data shows that the Markit iBoxx Asia China USD Bond Index has achieved a yield of 8.97% year-to-date. Against the backdrop of the US dollar's appreciation and interest rate hikes, overseas asset returns have been fruitful.

With the Federal Reserve's interest rate reduction cycle starting on September 18, many institutional figures have expressed that the issuance scale of overseas bonds may be somewhat constrained by this, but benefiting from the continuous narrowing of credit spreads, the structural investment opportunities of overseas bonds are still worth seizing.

According to Wind data, the total issuance of Chinese overseas bonds this year amounts to $106.774 billion, a 42.47% increase from $74.946 billion in the same period last year. From the perspective of term structure, the scale of short-term overseas bonds with a term of 1 year and below has significantly shrunk, with only $6.868 billion, accounting for 6.43%, a considerable decrease from $13.937 billion, accounting for 18.60% last year. Overall, the issuance term has lengthened, with the scale of bonds with a term of 10 years or more increasing by over $10 billion compared to last year, accounting for 13.36%.

Against the backdrop of the previous appreciation of the US dollar and interest rate hikes, Dim Sum Bonds and Panda Bonds have been playing an increasingly important role in Chinese overseas bonds, with issuance volumes continuously reaching historic highs.

Finance联社 statistics based on Wind data show that in 2023, Dim Sum Bonds had a total issuance of 819.2 billion RMB, an increase of 19% year-on-year. The issuance momentum continued this year, with a total issuance of 486.5 billion RMB in the first half of the year, a 23% year-on-year increase. As of September 29, the total issuance of Dim Sum Bonds has reached 761.875 billion RMB, with the majority being in the 1-year and below category, reaching 409.845 billion RMB, mainly from city investment Dim Sum Bonds.

Market participants indicate that the issuance scale of city investment Dim Sum Bonds has already exceeded one trillion in the first half of this year alone. Compared to US dollar bonds, the financing cost of Dim Sum Bonds is lower overseas, making them popular among issuers. Dim Sum Bond investors are mostly financial institutions with state-owned backgrounds or "southbound" funds. With rapid declines in domestic market interest rates, the widening interest rate differential between domestic and foreign bonds, and the high coupon on city investment Dim Sum Bonds have provided the market with attractive investment targets.

It is worth noting that industry insiders point out that with the start of the Federal Reserve's interest rate reduction cycle, the growth pace of Dim Sum Bonds issuance is expected to slow down. However, as long as the interest rate differential between domestic and foreign markets exists, the cost advantage of Dim Sum Bonds issuance will still maintain its attractiveness to domestic issuers.

According to Wind data, as of September 29th, the yields on 1-year, 5-year, and 10-year US Treasury bonds were 3.900%, 3.500%, and 3.7500% respectively, with the yield spreads with Chinese government bonds of the same maturity continuing to narrow to -233.25bp, -154.5bp, and -151.25bp.

Guotai Junan Securities' product researcher Yao Jialin said that the Fed's rate cut exceeded expectations, and the Sino-US interest rate spread is also expected to further narrow. For the domestic market, the unexpected rate cut reduces external constraints on domestic policies, and policy space will be further opened. "However, it is important to note that there is currently no sign indicating a high possibility of an economic recession, so the US bond yield curve may still continue to steepen in the short term," Yao Jialin said.

At the same time, institutional professionals believe that the future trend of overseas debt should also be considered in conjunction with the current policy landscape.

In the view of Caitong fixed income analyst Fang Duo, with the first anniversary of the debt restructuring approaching, the newly released Circular 134 also includes the onshore exchange of offshore debt in the scope of debt restructuring. However, offshore debts account for about 4% of the overall size of local government platform debts, so the impact on the domestic incremental bond market may not be significant.

Editor/ping