Morgan Stanley has become the first US company to issue a panda bond, marking a significant milestone in the growing internationalization of China’s domestic bond market.
The Wall Street bank issued 2 billion yuan ($275 million) worth of five-year panda bonds through its investment management subsidiary, at a yield of 1.98%, Bloomberg reported.
The proceeds will be remitted overseas to support Morgan Stanley’s global operations, including its offshore renminbi (RMB) business.
The bond’s yield was roughly 5 basis points higher than the average yield on comparable RMB-denominated corporate bonds, reflecting both investor appetite and the bank’s international stature.
What are panda bonds, and how has the market evolved
Panda bonds are yuan-denominated debt instruments issued in China by foreign companies or offshore entities.
First launched in 2005 by development institutions like the Asian Development Bank and International Finance Corporation, the market has expanded steadily, with a sharp uptick in issuances seen over the past two years.
Initially, the panda bond market was constrained by tight regulatory oversight and limited eligible issuers.
But from 2010 onward, policy reforms opened up the market, allowing a broader range of multinational corporations (MNCs), sovereigns, and financial institutions to participate.
The bond class has gained traction particularly since 2023, amid changing global interest rate dynamics and shifting geopolitical alliances.
According to research by AInvest, the recent surge in panda bond issuance is being driven by three primary factors:
Regulatory streamlining: Simplified approval processes and clarified use-of-proceeds guidelines have lowered entry barriers for foreign issuers.
Cost efficiency: With renminbi rates remaining lower than US dollar rates, many firms are turning to panda bonds to access cost-effective capital.
Geopolitical realignment: Multinationals are adopting a “China for China” financing strategy to insulate themselves from Western financial pressures.
For global companies, panda bonds offer both access to China’s deep capital markets and a hedge against ongoing U.S.-China trade tensions.
Morgan Stanley’s symbolic entry amid broader hesitations
While Morgan Stanley’s investment management arm is the entity behind the bond issuance, the move signals the parent company’s strategic interest in China’s onshore capital markets.
This comes even as its index subsidiary, MSCI, continues to express caution.
In 2025, MSCI excluded China A-shares from its Emerging Markets Index for a third consecutive year, citing persistent concerns over capital controls and investor accessibility.
This dual stance reflects the complex reality of RMB internationalization.
On the one hand, China’s regulators have allowed greater use of RMB in cross-border investment and trade.
On the other hand, strict capital repatriation rules and currency convertibility remain obstacles.
As AInvest notes, panda bonds and other offshore instruments like Dim Sum bonds have emerged as parallel tools to internationalize the yuan while working within existing capital account constraints.
How cost advantages and strategic relevance are fuelling growth
According to a Deutsche Bank report, the panda bond market’s growth is also being powered by attractive financing costs.
“Compared to USD bonds, Panda bonds often offer lower financing costs, making them a compelling option for corporates seeking to optimise their financing structures,” the report said.
The ability to repatriate funds for offshore use—subject to approval—has made the instrument more appealing, particularly for companies managing multi-currency operations.
Moreover, the political advantage of funding operations in local currency, in a market increasingly defined by economic nationalism and regional power blocs, cannot be understated.
“For multinational corporations, the shift toward RMB financing is not merely a cost-saving measure but a strategic alignment with China’s economic vision,” AINvest says.
Challenges to look out for
However, challenges persist. Despite some easing, capital controls continue to restrict the free flow of RMB assets, posing structural limitations for both issuers and investors.
As a result, investors must conduct thorough due diligence when evaluating Panda Bonds.
One key risk is currency fluctuation, as changes in the RMB-USD exchange rate can significantly impact returns.
Additionally, the evolving nature of China’s financial regulations introduces a degree of uncertainty that could affect bond terms or repatriation rules.
Liquidity is another concern; while the Panda Bond market has grown and matured over the years, it still lacks the depth and trading volume of more established US dollar bond markets, potentially limiting exit options for investors.
Nonetheless, institutional interest in RMB assets is expected to grow.
Strategic moves for investors in a rising renminbi landscape
AInvest recommends a multi-pronged investment approach for those seeking exposure to the RMB’s internationalization:
Diversify with panda bond ETFs to spread issuer risk.
Use currency-hedged vehicles to protect against RMB fluctuations.
Monitor reforms to China’s capital account and repatriation rules.
Explore complementary offshore markets like Dim Sum bonds for greater flexibility.
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