Sense on Cents

The BRIC nations (Brazil, Russia, India, China) have certainly not been bashful in promoting the need for some competition in the greenback as the international reserve currency. Is that competition going to escalate as China issues yuan-denominated bonds for the first time? Major high five to MC of Investor Rebellion for bringing this developing story to my attention.

The Business Insider writes, Dollar Threat: China Selling Yuan Bonds for the First Time:

In yet another step to internationalize the yuan as a global currency, China will be selling yuan-denominated bonds on the international market for the first time.

This could be a new option for fixed-income investors, including central banks, who want to diversify away from the dollar.

AP: The 6 billion yuan ($876 million) bond sale is slated for Sept. 28, the ministry said. Hong Kong is Chinese territory but has its own currency and regulatory system and often is used by Chinese companies to deal with foreign investors.

The yuan, also known as the renminbi, or people’s money, does not trade on global markets despite China’s huge foreign trade, but Beijing is gradually expanding its use abroad.

It will be interesting to see what yield these bonds end up offering, and if central banks bite.

Given the consensus view that the yuan is artificially undervalued versus the dollar, longer-term Chinese bonds are likely to be appealing for their currency appreciation potential, in addition to their interest income. We expect a strong a response.

This development is very meaningful and bears watching. Questions and concerns I would have for investors include: (more…)