The market for new "dim sum" bonds is suffering its longest barren spell as China's interbank liquidity crunch and concerns over US monetary policy wreak havoc on offshore renminbi debt.
A dim sum bond has not been priced since June 18, according to Dealogic, marking the first four-week period without a single deal since offshore borrowing in renminbi first began in 2010. There has also been a steep sell-off on the secondary market, with average yields rising from 4.35 percent to 5.71 percent at the end of May, according to data compiled by Bank of China.
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Appetite for offshore renminbi credit has been hit by a number of factors over recent weeks. In June, China's interbank lending market endured its worst-ever cash squeeze as the People's Bank of China held back from adding liquidity to the system. Borrowing costs spiked, sparking a sell-off in Chinese equities and raising concerns about the health of the financial sector. Some offshore subsidiaries of Chinese banks responded by shifting renminbi back over the border, sapping liquidity from the Hong Kong market.
"With the connectivity between onshore and offshore, the effects [of the squeeze] are being felt in Hong Kong as well," said Tee Choon Hong, head of offshore renminbi capital markets at Standard Chartered.
Like their mainland counterparts, banks in Hong Kong have also battled to secure renminbi by offering higher interest rates on deposits. Many investors have chosen to park cash in renminbi accounts and short-term certificates of deposit that offer higher returns than their dollar-based equivalents, but come without the price fluctuations of bonds.