(Yicai) Dec. 19 -- Issuance of panda bonds, renminbi-denominated debt sold by foreign entities in China, has hit a record high this year, fueled by an upturn in the country’s bond market. 

Issuance reached CNY194.8 billion (USD26.7 billion) as of yesterday, setting a new annual record with a year-on-year increase exceeding 26 percent, according to financial data platform Wind.

The outstanding balance of panda bonds rose nearly 30 percent year-on-year to CNY319.3 billion. The weighted average term extended to three years from 2.3 years, while yields decreased to 2.33 percent from last year's 2.86 percent.

Panda bonds are increasingly attracting overseas borrowers, with fully foreign-funded and Hong Kong capital-backed issuers significantly increasing their market share. Previously, issuers were predominantly Chinese-controlled companies registered overseas and listed in Hong Kong.

Purely foreign issuers' share exceeded 40 percent this year, up from 17 percent last year, according to data from Deutsche Bank. Germany has emerged as the largest issuer country outside Hong Kong, alongside several global multilateral institutions.

Major international banks have joined the market. Deutsche Bank secured approval from the People's Bank of China for a CNY8 billion (USD1.1 billion) panda bond issuance quota over two years in 2022, according to Samuel Fischer, Deutsche Bank's head of China debt capital markets.

In July, the National Bank of Canada issued CNY5 billion of panda bonds, the largest single issuance at that time, at a coupon rate of 2.13 percent. In October, Singapore's United Overseas Bank offered its first yuan-denominated bonds since 2019, issuing CNY5 billion of notes at a coupon rate of 2.3 percent.

Secondary Market Growth  

Secondary market demand has also expanded, with monthly average trading volume of panda bonds exceeding CNY50 billion (USD6.85 billion) this year, up from around CNY30 billion last year.

Foreign investors are showing increased interest in panda bonds, which are expected to boost demand for yuan-denominated assets, according to Fischer. Notably, the proportion of foreign banks and overseas investors has recently climbed to nearly 50 percent, up from 20 percent last year.

Fischer predicts the panda bond market will remain robust, supported by expected further monetary policy easing in China and expanding cross-border financing channels.

Editor: Emmi Laine