2023-11-29-1 Minute to Understand: What is the recently popular Panda Bond? -

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For some time now, the Federal Reserve has been continuously raising interest rates, causing the interest rate differential between China and the United States to widen and some foreign capital to flow out of the domestic market.

But things are often like two sides of a coin.

Due to China's lower interest rates, the cost of financing is also lower, which has led to the popularity of panda bonds.

So today, let's take a little time to talk briefly about international bonds.

As we all know, people may always need money.

Even countries are no exception.

International bonds refer to bonds issued by a country's government, national organizations, financial institutions, or business enterprises in the international financial market to raise funds.

Depending on the issuer, the issuing region, and the currency in which the bond is denominated, international bonds can be divided into several categories:

  1. Eurobonds

Eurobonds refer to bonds issued by foreign issuers in the domestic market or domestic issuers in the foreign market, denominated in a third country's currency.

Let's turn the clock back to the 1960s when the US dollar was still widely used as an international currency.

At that time, some European countries would issue bonds in the United States.

This way, US residents could earn interest by purchasing bonds issued by other countries in the United States.

But when the US government saw that these bonds were being issued on its own turf, it became a little unhappy.

So in 1963, the US government decided to impose an "interest equalization tax" on such interest.

In 1965, the United States further required banks and other financial institutions to limit the amount of loans to foreign borrowers.

This made it difficult for these foreign borrowers to issue US dollar bonds or obtain US dollar loans in the United States. However, at the same time, many other countries on the European continent had a large amount of surplus US dollars idle and nowhere to use them.

Therefore, some European countries began to issue bonds denominated in US dollars in other European countries.

This is the origin of Eurobonds, which feels a bit like:

No, no, no, in the 1970s, due to large fluctuations in the US dollar exchange rate, Eurobonds gradually increased in denominations of currencies such as the Swiss franc, the Japanese yen, and the German mark.

So Eurobonds are equivalent to bonds issued by Country A in Country B, denominated in Currency C.

  1. Offshore Bonds

Offshore bonds refer to bonds issued by domestic issuers in the foreign market or foreign issuers in the domestic market, denominated in the issuer's home currency.

So offshore bonds are equivalent to bonds issued by Country A in Country B, denominated in Currency A.

  1. Foreign Bonds

Foreign bonds refer to bonds issued by domestic issuers in the foreign market or foreign issuers in the domestic market, denominated in the currency of the place of issue.

So foreign bonds are equivalent to bonds issued by Country A in Country B, denominated in Currency B.

According to convention, foreign bonds are often named after the characteristics or mascots of the place of issue.

For example, foreign bonds issued by overseas institutions in Japan are called Samurai bonds.

Foreign bonds issued by overseas institutions in the UK are called Bulldog bonds, with bulldogs referring to the original British bulldogs.

So naturally, foreign bonds issued by overseas institutions in China are called:

Oh, no, of course, they should be named after national treasures, as we mentioned earlier, panda bonds.

Therefore, panda bonds are foreign bonds denominated in RMB and were born in 2005.

We have mentioned this in previous articles, so we won't go into detail today. Students who want to review can check the link Panda Bonds.

In summary, China has gradually improved the institutional arrangements for offshore institutions to issue panda bonds in the interbank bond market in China. The funds raised from bond issuance can be retained domestically or used overseas, and these measures further promote the internationalization of the RMB.

Driven by China's low financing costs, the development of panda bonds will continue, and the RMB will gradually become a financing currency. The issuance of panda bonds by foreign companies in China increased by 58% in the first eight months of this year compared to the previous year.

Okay, that's all for today.

As usual, here's a bonus:

In one's life, there are many things that cannot be lost, many deep feelings and obsessions, many people come and go, ultimately turning into tears, smiling at the setting sun.

In one's life, as one walks, the past becomes a matter of course, flowing away at one's fingertips, leaving no footprints, only then can one truly cherish it.

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