Dim Sum bonds predicted to be range-bound in 2H14

The currency, though, is likely to rebound.

Theaverage yield of Dim Sum bonds are expected be range-bound in the second half of 2014.

According to a research note from HSBC, on the positive side, the currency is likely to rebound after seasonal strong USD demand fades and domestic companies cover their under-hedged positions.

The report noted that once this materialises, improving offshore liquidity will likely be seen accordingly.

Here's more from HSBC:

Although we don’t except conditions to be as loose as 1Q 2014, we think current CNH funding levels are not sustainable as the front end is already higher than onshore.

On the other hand, continuous supply will likely limit the yield decline. The good news is that most new issues should come from high grade or cross-over quality names, capping the yield rise of our CNH Bond Index.

In fact, the major change in our index at the start of each month has come from the index rebalancing so far this year.

For instance, the yield declined 6bp on 3 June due to the lower yields of new bonds added to the index (including sovereign auctions) and it rose 6bp on 2 July because of the higher yields of new joiners.