CDB taps US dollar bond market as yuan slips

Finance | Reuters and staff reporter 3 Jun 2021

Leading policy bank China Development Bank (CDB) said yesterday that it would sell its first US dollar-denominated onshore bond in nearly six years as Chinese banks struggle with a mountain of US dollars on deposit, and the onshore yuan fell to a one-week low.

CDB is seeking to raise no more than US$2 billion (HK$15.6 billion) through the one-year bond issue on June 3, it said in a statement posted on the website of China Central Depository & Clearing Co.

CDB's first onshore dollar bond since September 2015 will be issued with a 0.38 percent coupon, the statement said.

Bo Zhuang, chief China Economist at TS Lombard, said the issuance would help to set a benchmark price for onshore dollar bonds and help to stabilise Chinese dollar bond pricing after worries over the repayment ability of bad debt giant China Huarong Asset Management (2799) rocked some Chinese dollar bond issuers in April.

CDB's issuance also comes as China's banks struggle with a glut of dollars that traders say poses a risk to authorities' efforts to control the rapidly rising yuan.

"(The issuance) is to prevent carry trade and speculation on the appreciation of the yuan," said a Hong Kong-based portfolio manager. "Once onshore USD is hard to borrow, people cannot short USD or borrow USD to do carry trading."

In a prospectus posted along with the statement, CDB said proceeds from the issuance would be used for dollar denominated loans and external payments.

While US$2 billion is a drop in the bucket compared with US$1 trillion in onshore dollar deposits, traders and analysts say it could have a psychological effect on market expectations for the yuan, which has rallied to three-year highs.

"If all the media coverage starts to say China is trying mop up the dollar liquidity onshore, then that would definitely help with easing the pressure of RMB appreciation," said Zhuang. "It's more about signalling."

This came as the onshore yuan weakened 113 basis points to 6.3872 per US dollar yesterday, a one-week low.

Chinese yuan-denominated assets are not a "bargaining chip" for gamblers, the official Xinhua news agency said in a commentary on Wednesday, in the latest attempt to curb speculative bets on a further rally in the currency.

Meanwhile, China's capital Beijing will launch a lottery in June giving out free online wallets containing 200 digital yuan to winners, in another trial for the central bank's eCNY, according to a notice on the city's government website.



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