The surge was also driven by the widening onshore and offshore yield differential, as China’s monetary policies diverge from other major economies, said Yip.
While the US Federal Reserve and the European Central Bank held rates in recent meetings, both retained a hawkish tone. In China, however, the PBoC has introduced interest rate cuts and lowered the reserve requirement ratio for banks to shore up the economy.
The yield gap between US Treasuries and China government bonds has been widening. At the 10-year mark, it is around 190bp currently, and for the three-year, it is around 220bp.
As a result, it makes sense for foreign corporates that have a natural need in renminbi or those that want to take advantage of the low funding cost to consider the Panda bond market.
Egypt in October sold a Rmb3.5bn 3.51% three-year sustainable issue, the largest ever sovereign Panda bond. This was guaranteed by two Triple A rated multilateral development banks, the African Development Bank and Asian Infrastructure Investment Bank, helping to secure competitive terms for the transaction and setting a template for other African countries to follow.
Volkswagen, which is present in China since the early 80s, in September issued a debut Rmb1.5bn 3.05% two-year Panda bond. Having issued onshore auto asset-backed securities and offshore Dim Sum bonds in the past, the latest transaction further expanded the Wolfsburg-based carmaker's renminbi funding channels.
Yip said he is seeing increasing interest for the Panda bond market from global issuers including corporates, financial institutions and the public sector. But it will take time for them to prepare documentation and obtain regulatory approval or registration, as appropriate.
HSBC was a joint lead underwriter for both the Egypt and Volkswagen transactions, helping the two issuers to bridge the cultural, regulatory and documentation differences across the international and onshore renminbi bond markets.
Bjoern Baetge, head of global markets at Volkswagen, said the group has monitored the Panda bond market for several years before deciding to enter the market. The group has been in a consistent dialogue with its bank partners and regulator on the development of the market and requirements.
"Preparation is just as important as timing when you want to successfully issue your inaugural bond of this size. It helped that we never underestimated the time we needed to get ready. During that phase we built up a very good relationship with local Chinese Investors and did a successful roadshow in China" said Baetge.
The Panda bond issuance was highly strategic for Volkswagen as the implementation also supports its strategy of “In China, For China”. Proceeds will be used for its onshore business in China.
Baetge said the group is likely to revisit the Panda bond market in 2024.