Hong Kong to cement its role as a yuan bond hub by appealing to more sovereign borrowers

Hong Kong is actively seeking to attract more sovereign borrowers for its yuan bond market, following discussions at the Apec Finance Ministerial Meeting. Analysts believe the city's dim sum bond market offers lower fundraising costs and diversification advantages compared to developed markets. As US interest rates rise, sovereign governments are increasingly opting for alternative currencies like the yuan to reduce borrowing costs.

The yield for Hong Kong's dim sum bonds is currently 2.01% compared to 5.1% for US Treasury bonds. During the Apec talks, Hong Kong's Financial Secretary Paul Chan Mo-po could push for the city's involvement in debt financing for developing economies. Hong Kong is already a key hub for dim sum bonds, with the Chinese Ministry of Finance issuing a record 68 billion yuan in Hong Kong in 2025 and Indonesia launching its first dim sum bond issue there in 2025.

The city's five-year plan emphasizes expanding high-quality yuan-denominated assets and increasing offshore yuan circulation. Hong Kong's dim sum bond issuance rose 13.8% year-on-year to 266.9 billion yuan as of late September, with the market holding nearly 1.9 trillion yuan in outstanding bonds. The Southbound Bond Connect scheme, introduced in 2021, enables mainland institutional investors to access Hong Kong's dim sum bond market, adding more mainland investors to the pool.

Hong Kong also offers bonds in various currencies and digital green bonds, which have attracted interest from Apec members. The city recently issued digital green bonds worth HK$20 billion in four currencies, positioning itself as a leading venue for sovereigns exploring digital green bonds.