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Chelsea Yang

Brazil is set to become the latest major economy to issue panda bonds – yuan-denominated debt sold in the Chinese market – joining a growing group of countries that has embraced assets backed by China’s currency as a means of fundraising.
According to analysts, the participation of Brazil – a founding member of the Brics (Brazil, Russia, India, China and South Africa) bloc of emerging markets and the world’s 10th-largest economy – marked a milestone for China, which is leveraging the wide interest rate gap between the yuan and US dollar to increase the international allure of its currency.
A Brazilian panda bond issuance was the subject of speculation after the two nations convened a meeting in Shanghai on June 9, when Pan Gongsheng, the governor of China’s central bank, explicitly welcomed it as part of their broader financial cooperation.
The issuance is widely expected to happen this week in Shanghai’s interbank bond market, when Brazilian finance minister Dario Durigan will lead a delegation to visit China.
If launched, it would make Brazil the seventh sovereign issuer over the past year, following in the footsteps of the UAE, Pakistan and Kazakhstan and joining over a dozen nations across Asia, Europe and South America that have already taken part.
“Brazil’s planned panda bond underscores growing confidence in China’s capital markets and highlights the yuan’s expanding role in global financing and reserve diversification,” said Wu Qian, senior analyst at Far East Credit Rating in Beijing.
The panda bond market has undergone a sharp acceleration in recent years. Last year, issuance value reached 183.6 billion yuan (US$27.1 billion).
Momentum has strengthened this year, with issuance rising by around 90 per cent year on year in the first five months to reach 136.5 billion yuan, according to financial information provider Wind.
The yuan has offered a funding-cost advantage over the dollar and euro in recent years, as China’s relatively low interest rate environment drew a contrast with elevated borrowing costs in major offshore markets.


The interest rate gap between China and the US, measured in terms of 10-year Treasury yields, currently stands at around 2.66 percentage points.
Recent panda bond issuance by sovereign and international borrowers has carried coupon rates mostly between 1.7 per cent and 2.5 per cent, with many emerging market issuers paying 5 to 6 per cent to borrow in US dollars and 3 to 5 per cent in euros, according to issuer disclosures.
China analysts hailed the rapid expansion of panda bond issuance, as wider adoption of the assets also boosts the overseas use of the yuan.
“Yuan is expanding its internationalisation across various functions, including settlement, circulation, financing and reserves,” according to an article published last week by analysts with CICC, a leading Chinese investment bank.
“Panda bonds are growing into a fundamental tool supporting this process and becoming an important channel for serving the internationalisation of the yuan.”
CICC was a key underwriter of a 3.4 billion yuan panda bond tranche from Kazakhstan, which was sold in May.
Panda bonds have become an increasingly important tool of Beijing’s economic diplomacy with emerging and developing economies, and a link with domestic capital markets and overseas investors.
On June 18, People’s Bank of China governor Pan held a meeting with Purbaya Yudhi Sadewa, Minister of Finance of the Republic of Indonesia. There, the Indonesian official outlined a plan to issue panda bonds in China’s domestic market.
Speaking at last week’s Lujiazui Forum, a finance conference watched closely by international investors for policy signals, Pan vowed to “steadily develop” the panda bond market.


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Brazil is preparing to issue panda bonds, another indicator of the rising popularity of yuan-denominated assets amid a de-dollarisation trend


Brazil is preparing to issue panda bonds, another indicator of the rising popularity of yuan-denominated assets amid a de-dollarisation trend.


The panda bonds: how China uses assets to boost yuan’s profile, cement partnerships

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Brazil is preparing to issue panda bonds, another indicator of the rising popularity of yuan-denominated assets amid a de-dollarisation trend

Brazil is preparing to issue panda bonds, another indicator of the rising popularity of yuan-denominated assets amid a de-dollarisation trend