(Yicai Global) July 27 -- The Shanghai government is about to issue the first local government bond in the Shanghai Free Trade Zone and may follow up with asset-backed securities and green bonds in the special economic area later this year, Yicai Global has learned.
It is expected that the Shanghai FTZ will issue the yuan-denominated ABS at the beginning of the second half, an offering which will be open to Chinese and foreign investors. A green bond open to foreign investors registered in the free trade zone looks likely in late 2016.
With the yuan's inclusion in the International Monetary Fund's Special Drawing Rights, central banks have increased their yuan reserves and a growing number of foreign institutions have added yuan assets to their portfolios. China's bond market has boomed in recent years because it is an ideal entry point for foreign investors. The IMF will add the yuan to its SDR basket of currencies -- the dollar, euro, yen and pound -- on Oct. 1.
According to Mr. Zhang Chaoyang, general manager of the development and planning department at Bank of China Hong Kong, the popularity of yuan assets with foreign institutional investors is mainly driven by exchange rates, new bond market policies in China, and fluctuations in the external environment.
Mr. Zhang predicts that foreign institutions will purchase tens of billions of yuan in bonds on the interbank market each month over the next several months.
Launched in September 2013, the Shanghai Free Trade Zone was the nation's first.