China's Finance Ministry to Sell $1.2 Billion of Yuan Bonds in Hong Kong

China’s government will sell 8 billion yuan （$1.2 billion） of bonds in its second such sale in Hong Kong, boosting the availability of offshore investment products as appreciation prospects spur demand for the currency.

The Ministry of Finance will sell 5 billion yuan of the debt to institutional investors, with maturities of three, five and 10 years, while 3 billion yuan of two-year bonds will be earmarked for individuals, according to a statement on its website today. The sale is due to start on Nov. 30, according to Shou Fugang, chief executive officer at Bank of Communications Co. （Hong Kong）, which is administering the sale.

“The Chinese government is showing support for the offshore yuan market by offering longer-dated debt to provide more investment opportunities,” said Frances Cheung, a Hong Kong-based senior strategist at Credit Agricole CIB. “Given the limited liquidity in the dim sum bond market, this sale may lead to more trading.”

The finance ministry started to offer government debt in Hong Kong for the first time in September last year, raising 6 billion yuan, part of its strategy to promote use of the yuan in global trade and investment. Royal Bank of Scotland Group Plc estimated last week that the value of yuan-denominated notes in Hong Kong, so-called dim sum bonds, has risen to 50 billion yuan.

Deposits Double

Shou told a press conference in Hong Kong that this year’s 10-year debt sale would help set a benchmark for the Hong Kong market and make trade more “active.” The ministry last year sold five-year bonds in Hong Kong with a 3.30 percent coupon, three- year securities at 2.70 percent and two-year debt at 2.25 percent. The Hong Kong Monetary Authority said the sale will use its Central Moneymarkets Unit.

Yuan deposits in Hong Kong more than doubled to a record 149 billion yuan in the six months through September and HSBC Holdings Plc forecast this month they will exceed 400 billion yuan within three years. HSBC, which controls two of the city’s three biggest banks, offers interest of 0.71 percent on deposits of 500,000 yuan or less placed with it for 12 months in Hong Kong, according to its website.

United Co. Rusal, the world’s biggest aluminum producer, is in talks to issue $100 million worth of yuan-denominated bonds in Hong Kong, the Apple Daily Chinese-language newspaper reported today, without saying where it obtained the information from or providing a timeline for the planned sale.

The yield on China’s benchmark 10-year bonds climbed seven basis points, or 0.07 percentage point, to a one-week high of 3.97 percent as of 11:49 a.m. in Shanghai. The rate for five- year notes was 3.68 percent and that for three-year securities was 2.61 percent.

The yuan has strengthened 2.8 percent to 6.64 per dollar since a two-year peg ended on June 19 and non-deliverable forwards reflect bets the currency will appreciate 2.9 percent in a year.