·Exchange rate volatility should be a driver of Panda bond growth
·Major reforms are occurring in the onshore fixed income market
·Chinese fixed income remains under-allocated in global portfolios

Update: Z-Ben Advisors believes that January’s exchange rate volatility in offshore RMB (CNH) further highlights structural changes we are observing in the onshore fixed income market. We also believe that any concerns surrounding fundraising and cost of capital offshore may be mitigated by these developments in the Panda bond market as a shift from offshore to onshore issuance continues. Greater demand and access to onshore RMB (CNY) credit are both moving in tandem as domestic reforms improving the pricing, breadth and depth of the onshore market accelerate. The domestic interbank bond (IBB) market, which makes up approximately 90% of the credit market, grew from RMB33tr to RMB44tr in 2015 and we expect it to reach RMB96tr by 2020. Z-Ben Advisors maintains its belief that RMB fixed income will become increasingly the most important asset class for global investors.

The year 2015 was a watershed for China’s fixed income market. It grew at its fastest pace since 2008 (now representing 70% of nominal GDP) and is beginning to…

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