Since the beginning of this year, Chinese foreign debt has performed outstandingly in both the primary and secondary markets. In terms of issuance scale, according to the latest statistics from Caixin, as of September 29th, the cumulative issuance scale this year has exceeded the $100 billion mark, reaching $106.774 billion, a significant increase of 42.47% compared to the same period last year. In addition, data shows that the Markit iBoxx Asian Chinese dollar bond index has achieved a yield of 8.97% so far this year. Against the backdrop of the appreciation of the US dollar and interest rate hikes, overseas assets have yielded significant returns.
With the start of the Federal Reserve's interest rate cut cycle on September 18th, many institutional insiders have expressed that the scale of overseas bond issuance may be affected by this, but benefiting from the continuous narrowing of credit spreads, the structural investment opportunities of domestic debt are still worth seizing.
According to Wind data, the total amount of domestic foreign debt issued by China this year has reached 106.774 billion US dollars, an increase of 42.47% compared to the same period last year when it was 74.946 billion US dollars. From the perspective of maturity structure, the scale of short-term restricted foreign debt with a maturity of 1 year or less has significantly shrunk to only 6.868 billion US dollars, accounting for 6.43%, which is a significant decrease from last year's 13.937 billion US dollars, accounting for 18.60%. Overall, the issuance period has been extended, with the scale of issuance with a maturity of more than 10 years increasing by more than 10 billion US dollars compared to last year, accounting for 13.36%.
Against the background of the appreciation of the US dollar and the increase of interest rates, Dianxin Bond and Panda Bond have played an increasingly important role in China's foreign debt, and their issuance has successively hit record highs.
According to Wind data, the Associated Press of Finance and Economics reported that in 2023, Dim sum bonds will be issued totaling 819.2 billion yuan, up 19% year on year. This year's issuance continues, with 486.5 billion yuan issued in the first half of the year, up 23% year on year. As of September 29, the total amount of Dim sum bonds issued has reached 761.875 billion yuan, of which the scale of one year and below accounts for the largest proportion, reaching 409.845 billion yuan, most of which are urban investment dim sum bonds.
Market insiders said that in the first half of this year alone, the issuing scale of urban investment point bonds had exceeded 100 billion yuan. Compared with US dollar bonds, the financing cost of Dianxin bonds is lower overseas, so it is welcomed by the issuer. Most investors in dim sum bonds are financial institutions with state-owned background, or& quot; Southbound Connection& quot; With the rapid decline of interest rates in the domestic market, the spread between domestic and overseas bonds has expanded. The higher coupon of urban investment point bonds provides a good investment target for the market.
It is worth noting that the insiders pointed out that, with the start of the Federal Reserve's interest rate reduction cycle, the growth rate of Dim sum bond issuance is expected to slow down, but as long as the domestic and overseas interest margin exists, the cost advantage of issuing dim sum bonds will still maintain its attraction to domestic issuers.
From the Wind data, as of September 29, the yields of 1-year, 5-year and 10-year US treasury bond had closed 3.900%, 3.500% and 3.7500% respectively, and the margin of interest limit continued to narrow to -233.25bp, -154.5bp and -151.25bp over the same period with China's treasury bond.
Yao Jialin, a product researcher at Guotou Securities, said that the Federal Reserve's unexpected interest rate cut is expected to further narrow the interest rate differential between China and the United States. For China, the unexpected interest rate cut has reduced external constraints on domestic policies and further opened up policy space. However, it should be noted that there are currently no signs indicating a high possibility of an economic recession, so the US Treasury yield curve may continue to steep in the short term, "said Yao Jialin.
At the same time, institutional insiders believe that the future trend of foreign debt should also be viewed in conjunction with the current policy level.
In the view of Fang Duo, a fixed income analyst at Caitong, as the one-year anniversary of this round of debt conversion has passed, the latest No. 134 document has also included domestic exchange of foreign debt in the scope of debt conversion. However, foreign debt accounts for about 4% of the overall scale of urban investment platform debt, and may not have a significant impact on the domestic incremental bond market.
According to the analysis of Huatai's fixed income team, overall, the reduction in the supply of high-yield assets this year, as well as the decrease in new defaults mainly on real estate dollar bonds, are important supports for driving the valuation recovery of Chinese dollar bonds. Looking ahead, the expected space for the Federal Reserve to cut interest rates has opened up, and the credit spread of Chinese foreign debt, especially Chinese US dollar bonds, is expected to continue to narrow. The index performance is expected to continue to rebound. In terms of strategy, attention can be paid to the game opportunities of investment grade financial/industrial US dollar bonds. At the same time, if domestic bonds are exchanged for foreign bonds and combined with the peak maturity of urban investment US dollar bonds in 2025, short-term moderate sinking can be used to gain excess returns.