Deutsche Bank yesterday launched the first tradable index that tracks dim sum bonds, as part of an effort to provide investors with liquid access to the offshore renminbi bond market.
The Deutsche Bank Offshore Renminbi Bond Index Tracker (Orbit) follows other indices launched in Hong Kong by Citi, HSBC and Bank of China, but Deutsche’s is the first that investors can use to take exposure to dim sum bonds.
“This is a tradable index,” said Vishal Goenka, head of local currency credit trading for Asia at Deutsche, at the launch. “We have institutional investors who can come and trade with us on this index, which is significantly different from any other product out there.”
Orbit uses transparent and non-discretionary rules to select the bonds it tracks and will be rebalanced monthly to ensure it captures the latest market information.
“We hope the liquid nature of this index, along with our visibility in secondary trading, will see it become the benchmark for the CNH bond market,” said Goenka.
Citi launched its Dim Sum (Offshore CNY) Bond Index on March 31, but the difference with that product is that you are locked in for a year, and it settles in renminbi.
HSBC's rival index, launched earlier this year, tracks the total return of all renminbi fixed-income instruments, but Orbit differs in that it tracks only offshore bonds and certificates of deposit with a minimum issuance size of Rmb1 billion ($154 million).
The two products also have a different sector mix. Orbit comprises 26% corporates, 35% financials, 26% government and agencies, 2% supra-nationals and 11% others, while the HSBC CNH Index comprises 40% corporates, 23% government, 33% financials and 4% supra-nationals.
Bank of China’s index differs again. Launched in December last year, it includes both fixed- and floating-rate bonds, while Orbit comprises only straight bonds with a fixed coupon. Moreover, Orbit tracks bonds with a maturity of at least one year, while the Bank of China index has a minimum of six months.
As of July 2011, Orbit tracked bonds worth a total of Rmb72 billion, with an average maturity of around two-and-a-half years and an annualised index return of 7.38%. So far, the biggest holdings in the index are Export Import Bank of China, Sinochem Offshore Capital and China Development Bank, with weights of 6.52%, 5.46% and 4.88% respectively.
By June this year, the value of the dim sum bond market had grown to $1.1 billion, up 73% during the previous three months. Liquidity in the secondary market has also grown. Deutsche estimates that volumes have increased 14-fold this year, up to Rmb3 billion in July from Rmb200 million in January. Primary issuance in 2011 has risen to Rmb85.32 billion as of July 15 from Rmb35.68 billion in 2010.
(With input from Leanne Wang)