This morning I put in an application for the RMB Sovereign bond issue. At 2.38% pa it offers a negative real return for the next three years (even with a full waiver of bank fees etc). Given the currency risk, you could describe it as return free risk. So why buy it?
To begin with, the amount I applied for was a token amount - the unused RMB sitting in my bank account earning a fraction of 1% and that is exactly the point. The alternatives are to leave the money sitting in the account earning less than 2.38% or to hunt for better investments. I have no shortage of cash looking for a home at the moment and that cash yields less than the 2.38% on offer, making the RMB bonds simply a better choice than leaving the money in the bank.
Now there are plenty of other issues of RMB bonds I could consider - but all of the ones which are available to me either carry material credit risk or require a minimum of RMB 1 million face value. I am tempted by the latter, but would have to buy quite a bit more RMB than I currently hold - at this time I am not completely sold on the RMB's prospects for appreciation against the HKD.