An HSBC research note said on Monday that returns of offshore yuan-dominated bonds may improve in the second quarter of 2014 with 0.8 percent gains amid stabilized rates of China's yuan.

Offshore yuan-dominated bonds, also known as dimsum bonds, reported a 2.11 percent loss in the first quarter of 2014 amid sloppy macro economic landscape and depreciation of China's yuan, according to the HSBC note.

However, the dimsum market is still challenging and investors' sentiments may be impacted by recent default cases, the report said.

According to HSBC data, balance of dimsum bonds and offshore renminbi Certificate of Deposit may reach 692 billion yuan ($111.38 billion) by March, about 24 percent more than that by the end of 2013.

The report said it estimates that newly issued dim-sum bonds and offshore renminbi certificate of deposit may reach 570 billion yuan by the end of 2014, a year-on-year increase of about 54 percent.