World Bank issues bond denominated in Chinese yuan

[pampango]

Source: BBC

The World Bank has issued its first bond denominated in the Chinese currency, joining a small but fast-growing market.

The yuan-denominated bond is being issued to promote the use of the Chinese currency in international markets.

Doris Herrera-Pol, the global head of capital markets at the World Bank, said: "This is a landmark transaction for the World Bank as it is the first World Bank issuance in RMB (yuan), and signals the strong interest of the World Bank in supporting the development of the RMB market."

The market in Hong Kong for yuan-denominated bonds started just over three years ago. Hong Kong, although part of China, has a well-developed and more open financial market and is a conduit between China and the capitalist developed world.

Read more: http://www.bbc.co.uk/news/business-12117280

[Javaman]

1. No thanks.

the Chinese's economy is more fucked up than ours. Once they actually give a real accounting of the value of the yuan, that bond won't be worth the paper it's printed on.

Plus their hyper growth is starting to wain.

on top of that, one can equate China's banking system to that of pre-1929-depression.

I'll wait.

[Canuckistanian]

2. But isn't the yuan pegged to the USD?

What would be the advantage of a yuan bond?

[Art_from_Ark]

3. It is pegged, and it isn't pegged

It's not like, say, the Japanese yen was between 1948 and 1971, when it was pegged at 360 to the dollar for that entire time. Every once in a while China moves up the value of the yuan vis-a-vis the US dollar in slight increments, so a yuan bond theoretically would profit from a future rise in the yuan's exchange rate.

[Canuckistanian]

4. Thanks for the explanation

I'm glad we have experts here.

[Art_from_Ark]

5. Here's a US Dollar-Yuan 1-year chart

As you can see, the yuan was fairly stable vis-a-vis the dollar until about June 30 of last year, after which it started to show some fluctuation with a trend of gaining against the dollar (or, as the graph shows, the dollar losing against the yuan).

http://finance.yahoo.com/echarts?s=USDCNY=X+Interactive#chart1:symbol=usdcny=x;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

Say you bought US $1000 worth of yuan last June at 6.8 yuan per dollar. You would have received (theoretically) about 6800 yuan. Now, take that same 6800 yuan today, and you could (theoretically) buy 1030 US dollars, for a gain of about 3% in a half year. If the trend continues, you could stand to gain on both the exchange rate, and whatever yuan bonds were paying in interest.

But of course, all that is theoretical. For the little guy, currency exchange fees could eat up the profits, as I found out when I looked at some materials for investing in 5% New Zealand bonds with a Japanese bank. The Japanese government would automatically take 20% of the interest as tax, and the bank's TTB (buy) and TTS (sell) rates were set up so that all the remaining interest would go just to pay the fees for converting yen to NZ dollars, and back again.

[Art_from_Ark]

6. Here's an article that might help to explain interest in yuan bonds

"Yuan to rise 5-6 percent in 2011: China central bank adviser"

http://www.reuters.com/article/idUSTRE7060OK20110107