The first tradable benchmark index for offshore yuan (dim sum) bonds was launched in Hong Kong on Monday, a move that could bolster secondary market development of the local offshore yuan bond market.

The Deutsche Bank Offshore Renminbi Bond Index Tracker (DB ORBIT) will include dim sum bonds and certificates of deposit with minimum maturities of 12 months and minimum issue sizes of at least 1 billion yuan ($155 million). The index will be calculated in yuan and rebalanced on a monthly basis, according to Deutsche Bank.

Other banking institutions such as HSBC Holdings Plc and Citibank launched non-tradable dim sum bond indices in March and April respectively.

The index is only available to institutional investors for trading in US dollars, offshore yuan and Hong Kong dollars. As of July 2011, DB ORBIT represents a yuan bond investment portfolio of 72.33 billion yuan, with an average duration of 2.55 years and annualized index return of 7.38 percent in US dollar terms. DB ORBIT was introduced on December 31 last year but only started trading on Monday, Deutsche Bank said

"DB ORBIT can improve market access not only by allowing sizable fund inflows into the offshore yuan bond market for the first time, but also strengthening the market's role as a reliable source of yuan financing by boosting secondary market liquidity," said Vishal Goenka, head of local currency credit trading (Asia) at Deutsche Bank.

Trading volume of offshore yuan bonds has risen from approximately 200 million yuan in January to 3 billion yuan in July, according to Deutsche Bank. The total outstanding value of dim sum bonds in the city may reach 250 billion yuan by the end of 2011, the investment bank added.

Yuan bond primary issuance is also picking up. According to Bloomberg figures, the primary issuance of offshore yuan bond in the city swelled from 35.68 billion yuan in 2010 to 85.32 billion yuan as of July 15, 2011.

"Introducing more offshore yuan bond index can better help local retail investors to gauge the performance of their yuan bonds or yuan bond funds," Capital Focus Asset Management Director Simon Luk told China Daily.

The city has accumulated a sufficient yuan liquidity pool to support the development of the offshore yuan bond market. As of the end of May, local yuan deposits climbed to 548.8 billion yuan, representing around 8 percent of the total deposits in the city, compared with 310 billion yuan at the end of 2010, the Hong Kong Monetary Authority said.

oswald@chinadailyhk.com

China Daily

(HK Edition 07/19/2011 page2)