City of London gets boost after China's central bank launches first yuan-denominated bonds

Timing in perfectly with the first day of President Xi Jinping's state visit to the UK, China's central bank issued its first yuan-denominated bonds in London, which attracted bids for more than 30bn yuan (£3.06bn; $4.7bn).

The yuan-denominated bonds are believed to be the first ever to be issued outside of China and Hong Kong. It is seen as a major boost for London as an international financial centre and the main western trading hub for the yuan.

Investors bought 5bn yuan-denominated one-year bills on Tuesday. The bonds were six times oversubscribed, which pushed the final yield to 3.1% from a marketed rate of 3.3%. Following the resounding success of the auction, China's finance ministry is expected to launch a second longer dated yuan-denominated bond issue.

Spencer Lake, the global head of capital financing at HSBC, one of the banks that arranged the sale, described the bond issue as a milestone in the internationalisation of the yuan. "This strategic move demonstrates the clear commitment by the Chinese authorities to grow the offshore bond market and the confidence in the City of London as a leading renminbi hub for future activities," he said.

"The PBoC bond will give a genuine boost to liquidity, market confidence and provide investors with the quality that they demand," Lake said. The UK and China have also implemented initiatives to link their financial markets, including formally connecting the London and Shanghai stock markets.

Tommy Xie, a Singapore-based economist at the Oversea-Chinese Banking Corp said: "This is another important step in yuan internationalisation, which could help increase chances to win reserve status. For London, by playing an essential role in the process, the city enhances its role as the world's currency trading centre." Analysts said that London is extending its lead over both Paris and Frankfurt in the race to be Europe's yuan hub.

Shen Jianguang, chief Asia economist at Mizuho Securities said last week: "A highlight of China-UK economic relations is London's potential role as a top offshore renminbi centre in Europe. This will further strengthen London's position as a predominant global financial centre. London's support is also critical to encourage more trade and investment to be settled in renminbi and for more financial products to be issued in the currency."

Industrial and Commercial Bank of China, and HSBC were the joint global co-ordinators for the sale. ABC, Bank of China, Bank of Communications, China Construction Bank and Standard Chartered were the joint bookrunners and lead managers.

CME signs tie-up with China Construction Bank

Separately, the Chicago Mercantile Exchange announced a tie-up with China Construction Bank that will allow CME to become London's first trading platform to offer offshore renminbi futures. This will allow financiers to hedge and trade on anticipated movements in the Chinese currency. Previously, this facility was only offered via Hong Kong.

"The ability to transact during London hours is of paramount importance to those institutions who value flexibility in managing their positions in markets where prices can move sharply in short periods of time," said William Knottenbelt, head of international at CME. CCB received Beijing's approval last year to open Europe's first clearing bank for the yuan in London. Bank of China's branches in Frankfurt and Paris got the green light shortly after.