AXA IM sees benefits of Chinese debt issuance in London

AXA Investment Managers (AXA IM) has commented on the expected announcement of the issuance of Chinese debt in London, as part of increased co-operation between China and the UK.

Jim Veneau, head of fixed income Asia at AXA IM said the Peoples’ Bank of China (PBoC) is expected to issue up to 5 billion renminbi (RMB) bills with one year maturity to a good level of support from the market. He added: “What makes the PBoC issuance interesting is that it’s an inaugural topic for the UK as they have never issued in offshore markets before. Although pricing is still unconfirmed, short-dated Chinese sovereign bonds yield close to 3% and hence it is reasonable to expect the PBoC issuance to yield similar levels if not slightly higher than that. Valuation-wise, this is considered attractive since 10-year onshore Chinese government bonds yield only 3%.”

Aidan Yau, senior emerging market economist at AXA IM, said that the RMB bond issuance will help the UK government diversify its funding sources and will cement the UK’s position as a leading RMB offshore centre and help investors that want to hold RMB assets but do not have the appropriate approval to do so in China. “Furthermore, with continued investor concerns surrounding China’s sovereign risks, holding bonds issued by the UK government can alleviate some of that concern,” Yau said. He also said that the bond issuance would also help with the internationalisation of the renminbi and its acceptance as a reserve currency.