China to reduce the amount of yuan-denominated bonds it offers to Hong Kong - BBH

China's Ministry of Finance made important announcements yesterday as for the first time, China indicated its intentions to reduce the amount of yuan-denominated bonds it offers in Hong Kong notes the analysis team at BBH.  

Key Quotes

“It will issue CNY14 bln of bonds in H2 17.  This is the smallest since 2010.  It will complement the yuan issue by issuing $2 bln of USD-denominated bonds.”

“The changing fortunes of the yuan have seen its deposits in Hong Kong have been nearly halved from the CNH 1 trillion reached at the end of 2014.  Chinese officials have tried to curb outflows and arrest the slide in the yuan, which has fallen for three years.  In addition to capital controls, the PBOC is thought to have helped engineer a liquidity squeeze in Hong Kong that makes it expense to be short.  According to Bloomberg, the overnight rate in Hong Kong is averaging the highest in at least three years here in 2017.”

“The US-dollar issue will be the first in over a decade.  Scarcity will likely translate into tight pricing.  The five-year dollar note sold in 2004 yielded about 60 bp more than the comparable US issue at the time, according to Bloomberg data.   The supply may be calibrated to facilitate the expansion of Chinese banks' offshore expansion.”