World Bank Sells the First SDR Bonds Since 1980s Amid Yuan Push

(Bloomberg) -- The World Bank has issued bonds denominated in the International Monetary Fund’s Special Drawing Rights, the world’s first such sale in three decades.

The Washington-based lender sold 500 million SDR units ($698 million) of three-year notes in China’s interbank market ahead of this weekend’s G20 Summit in Hangzhou, the People’s Bank of China said. They were priced to yield 0.49 percent, Xie Duo, the secretary general at the National Association of Financial Market Institutional Investors, a unit under the central bank, said at a ceremony for the transaction. The offering drew 50 institutions including banks, brokerages and insurers, according to a Wednesday statement on PBOC’s website.

The Chinese government has been promoting greater international use of the yuan and from Oct. 1 the currency will be included in the basket used to calculate the value of the SDR, an alternative international reserve asset. Major Chinese financial institutions have expressed interest in selling SDR bonds, Yi Gang, the deputy governor at China’s central bank, said in an Aug. 15 briefing.

Yuan Internationalization

The issuance will help promote the use of SDR and “increase Chinese investors’ access to foreign currencies in the domestic bond market,” World Bank Group President Jim Yong Kim said in an Aug. 12 statement. The yuan has fallen about 4.5 percent in the past 12 months, increasing appetite among Chinese investors for diversification.

SDR notes will help avoid foreign exchange and interest risk stemming from assets denominated in a single currency, and will diversify asset allocation for domestic and international investors, the People’s Bank of China said in August.

The last time an SDR security was issued anywhere in the world, Deng Xiaoping was the leader of China and the nation lacked a modern bond market. Sweden was one issuer of securities in the unit, selling an SDR-denominated “credit” in 1981, a move that was followed by several other borrowers, according to the paper by George Hoguet and Solomon Tadesse titled "The Role of SDR-denominated Securities in Official and Private Portfolios."

To contact the reporters on this story: Lianting Tu in Hong Kong at ltu4@bloomberg.net, Carrie Hong in Hong Kong at chong61@bloomberg.net. To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Sandy Hendry