China RMB bonds
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Discuss the Demand for China offshore RMB bonds.
What is Dim Sum Bonds?
Are global investors interested into the RMB markets? Why? Why not?
Why is the demand for China's RMB currency so high?
(Use exchange rate to back up your answers)
Is China's RMB denominated bonds more profitable than Europe/US bonds?
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What is Dim Sum Bonds?
The Dim Sum Bonds are Yuan bonds issued by large firms in China or Hong Kong. These bonds are meant to attract foreign investors that desire investment in Yuan-denominated bonds but are disallowed from investing in domestic Chinese bonds. Currently, some of the top multi-national companies in the region have issues these bonds. These include Caterpillar, Unilever, and McDonalds. There is a small but rapidly growing market for these bonds and it is estimated that this market will grow soon.
The main reason why these bonds are attractive is that the Chinese government has allowed the Yuan to appreciate against a basket of foreign currencies. Now, the investors expect that the Yuan will continue to appreciate against the basket of foreign currencies because of two reasons. First, they feel that the Yuan is still undervalued and second there is international pressure on the Chinese government to allow the Yuan to appreciate against foreign currencies. Currently, there are exchange traded funds through which an investor can invest. These include Guggenheim Yuan Bond ETF, Market Vectors Renminbi Bond ETF, and PowerShares Chinese Yuan Dim Sum Bond Portfolio.
Are global investors interested into the RMB markets? Why? Why not?
Global investors are interested into the RMB markets because most investment experts feel that renminbi will continue to appreciate against the dollar. Even though the yields on renminbi bonds are relatively low, between 2and 4 percent, the appreciation of the renminbi is expected to drive up the prices of these bonds. This assumption ...
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