The renminbi-denominated bond market has experienced widespread popularity as investors seek exposure to the Chinese currency.
There are now a trio of exchange traded funds tracking this asset class. [Dim-Sum: Three New Yuan Bond ETFs]
These renminbi-denominated bonds could create a liquidity crunch that stems from lack of assets in the targeted market, according to the Financial Times.
“Liquidity is certainly an issue,”William Belden, head of product development at Guggenheim, said in the FT report. “But the index our fund tracks uses a carefully chosen universe of issuers to maximize liquidity.”
Investors that are seeking exposure to the Chinese currency are anticipating it to appreciate against the dollar, according to the report. About $11.3 billion of debt has been issued this year in the renminbi bond market, according to Dealogic.
Market Vectors Renminbi ETF (NYSEArca: CHLC) was launched in early October. PowerShares Chinese Yuan Dim Sum Bond Portfolio (NYSEArca: DSUM) was launched Sept. 23, while the Guggenheim Yuan Bond ETF (NYSEArca: RMB) came to market Sept. 22. The Chinese-yuan denominated bonds included in the indexes are issued by both Chinese and non-Chinese companies. The Chinese yuan is a base unit of the Chinese currency system, called the renminbi. [The Growth Story Behind China’s Economy, ETFs]
“ETFs could distort renminbi bond pricing by pushing yields too low,” Dariusz Kowalczyk, Hong Kong-based strategist at Crédit Agricole, said in the FT story.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.