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Determinants of the onshore and offshore Chinese government yield curves

Author

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  • Löchel, H.
  • Packham, N.
  • Walisch, F.

Abstract

As part of its effort to internationalize the Renminbi, China's government has promoted the establishment of a regulated offshore Renminbi capital market hub in Hong Kong, where, among other activities, it issues RMB-denominated government bonds in order to establish a benchmark yield curve in the market. In a VAR model where yield curves are represented by Nelson–Siegel latent factors and which includes basic macroeconomic variables, we find that market forces have a higher impact on the offshore market for government bond yields than on the corresponding onshore market. Exchange rate expectations turn out to be the main driving variable for both the onshore and the offshore market, with a significantly stronger impact on the latter. Weak spillover effects from the onshore government bond yield curve to the offshore yield curve are observed, but no spillover effects the other way round are present.

Suggested Citation

  • Löchel, H. & Packham, N. & Walisch, F., 2016. "Determinants of the onshore and offshore Chinese government yield curves," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 77-93.
    • Handle: RePEc:eee:pacfin:v:36:y:2016:i:c:p:77-93
    DOI: 10.1016/j.pacfin.2015.11.001
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    Cited by:

    1. Liu Kerry, 2023. "The Effects of Foreign Participation on Chinese Government Bond Yields," Folia Oeconomica Stetinensia, Sciendo, vol. 23(2), pages 222-240, December.
    2. Kerry Liu, 2022. "The Chinese Government Bond Markets: Foreign Investments and Market Efficiency," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 14(1), pages 93-104, January.
    3. Han, Liyan & Xu, Yang & Yin, Libo, 2018. "Forecasting the CNY-CNH pricing differential: The role of investor attention," Pacific-Basin Finance Journal, Elsevier, vol. 49(C), pages 232-247.
    4. Makram El-Shagi & Lunan Jiang, 2017. "China Monetary Policy Transmission in China: Dual Shocks with Dual Bond Markets," CFDS Discussion Paper Series 2017/2, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
    5. Feng, Xunan & Johansson, Anders C., 2018. "Firm Ownership, Political Participation, and Access to Finance through Public Bond Offerings in China," Stockholm School of Economics Asia Working Paper Series 2018-50, Stockholm School of Economics, Stockholm China Economic Research Institute.

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    More about this item

    Keywords

    Chinese government bond market; Chinese offshore market; CNH; RMB;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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