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 per cent to 5.71 per cent at the end of May, according to data compiled by Bank of China.
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.