China raised six billion dollars in its biggest ever international sovereign bond sale on Tuesday, as it pounced on the year’s sharp dive in borrowing costs.
The finance ministry sold the bonds in four tranches. A 3-year issue priced 35 basis points (bps) above benchmark United States treasury bonds, a source at one of the managing banks said.
A 5-year bond priced at 40 bps above treasuries, a 10-year at 50 bps above treasuries and a 20-year tranche at 70 bps above Treasuries, the source said.
The deal comes after a market rally this year that has driven global bond yields sharply lower, significantly decreasing the cost of financing compared with China’s previous dollar issuance in October 2018.
The six-billion-dollar total was roughly double the original target. The order books – or demand – for the bonds had been over $20bn earlier in the day, according to Refinitiv capital markets news service IFR.
“This has been the largest Reg-S offering by an Asian sovereign issuer to date,” said Sam Fischer, head of China onshore debt capital markets at Deutsche Bank, one of 13 banks mandated to lead the sale.
China’s finance ministry had signalled the move would help it improve its bond yield curve – offering investors better rates for longer-term instruments.
It will “provide a pricing benchmark for Chinese enterprises issuing US dollar bonds”, Bank of China said in a statement on its website on Tuesday.
The sale marked only the third dollar bond sale since Beijing revived its international debt issuance programme two years ago after a 13-year hiatus.
The initial comeback deal in 2017 raised two billion dollars, while another transaction in 2018 raised a further three billion.
Earlier this month, China also sold its first euro-denominated bond in 15 years, raising $4.4bn, and analysts believe European financial markets will become a greater source of funds for the Asian economic superpower in the future.
All bonds offered buyers between 2 and 3 percent. US 10-year treasuries yielded just 1.75 percent on Tuesday, according to Refinitiv data, nearly 150 basis points below its highs last October, when the sovereign issuer last tapped the dollar bond market.
“From a tactical financing standpoint, now is an opportune time to obtain some relatively inexpensive financing,” said Alex Kozhemiakin, head of emerging markets debt at Macquarie Asset Management in New York.
Meanwhile, US President Donald Trump said on Tuesday that Washington was in the “final throes” in its attempt to reach a trade deal with China, but that at the same time the US stands with protesters in Hong Kong, where it wants to see democracy.