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rather unusual event arose, that Team China now able to borrow USD at less cost than the domain that prints the USD. IOW, rather funny when once one has fully digested the circumstances to appreciate its finer factors ...
bloomberg.com
Yields on New China Dollar Bonds Fall Below Treasuries in DebutInvestors bid for 20 times the bonds on offer at sale
Three-year note trades about 24 basis points under Treasuries
By Ameya Karve, Finbarr Flynn, and Lorretta Chen
14 November 2024 at 11:36 GMT+8
China just borrowed dollars in global credit markets at essentially the same cost as the country that prints them, and traders immediately drove the yields on the bonds down even further.
The Asian nation raised $2 billion from three- and five-year notes that yield just one and three basis points over similar-maturity Treasuries, respectively. Then once trading kicked off Thursday, spreads tightened to about 24 and 25 basis points under Treasuries, traders said.
That adds to signs of strong demand that stood out throughout the debt sale process. Bids for the $2 billion deal surpassed $40 billion, 20 times what was on offer, according to a person familiar with the matter.
Traders said part of the strength stems from demand from Chinese investors, who have been hunting for higher returns globally as local rates grind lower. Such investors can also benefit from tax exemptions on the nation’s sovereign debt. Their enthusiasm already helped yields on some of China’s previously issued dollar bonds trade below those on Treasuries for most of the past year, a rarity because the US securities have historically been considered the safest of investments.
“Lack of dollar bond supply plus accommodative financing conditions onshore have led to a strong bid for dollar bonds from China onshore investors,” said Xue Zhou, senior China economist at Mizuho Securities Asia Ltd.
China’s dollar note due November 2027 has held a so-called negative spread to US Treasuries for most of the past year, and the yield on that debt security was last about 18 basis points under the equivalent US government bond, Bloomberg-compiled data show.
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While China’s newly issued bonds were available to investors globally, officials last week said they would be sold in Saudi Arabia, an unusual venue given that London, New York and Hong Kong are normally being picked for such transactions. But the choice comes after recent efforts to boost economic ties. Officials from both countries met earlier this year to discuss cooperation, and the warming relations can be seen in moves such as a doubling of investment in Saudi Arabia by China’s biggest steel producer.
“It is in line with the two countries’ rising connections,” said Ting Meng, senior Asia credit strategist at Australia & New Zealand Banking Group. “The bond is in the same format as prior ones, but there could be more Middle East investors.”
The bonds will be listed on Nasdaq Dubai and the Hong Kong exchange.
China sold 2 billion euros ($2.1 billion) of notes in Paris in September, its first euro-denominated bond sale in three years. Last week, the Ministry of Finance announced a $1.4 trillion bailout program for debt-straddled local governments, though it stopped short of more stimulus to lift domestic demand.
Bank of China, Bank of Communications, Agricultural Bank of China, BofA Securities, China Construction Bank, China International Capital Corporation, Citigroup, Crédit Agricole CIB, Deutsche Bank, First Abu Dhabi Bank, Goldman Sachs (Asia) L.L.C., HSBC, ICBC, J.P. Morgan, Mizuho and Standard Chartered Bank arranged the sale.
— With assistance from Qingqi She, Helene Durand, Paul Cohen, Caleb Mutua, Jing Zhao, Shulun Huang, and Paul Dobson |
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