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Reserve Currency in the Making: China Hong Kong Bond Sale May Garner ‘Huge’ Demand, BoCom Says

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At least 2 billion yuan of two- and three-year notes will be targeted at individual investors, while fund managers can buy three- and five-year issues, the ministry said Sept. 17.

“The market speculates the bond yields will all be at least 2 percent,” said Ka Chung Law, a strategist at the Hong Kong branch of BoCom, China’s fifth- biggest lender. “The demand will be huge because the yields are much higher than the deposit rate for the Chinese currency in Hong Kong, which is only around 0.8 percent.”

Yuan deposits at the city’s banks totaled 56 billion yuan at the end of July, the most this year, and the People’s Bank of China that month approved a trial program for the currency to be used to settle cross-border trade with Hong Kong. Chinese government debt may prove popular with fixed-income investors after the failure of Lehman Brothers Holdings Inc. a year ago led to losses on so-called minibonds that were backed by the U.S. bank and sold in Hong Kong, according to Bank of China Ltd.

Demand Forecast

“After the global financial crisis,

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