China matches US Treasury yields for the first time in $4B dollar bonds

China’s Ministry of Finance issued $4 billion in dollar-denominated bonds in Hong Kong, with the three-year tranche yielding 3.625%, matching comparable US Treasury yields. The five-year tranche was priced 0.02 percentage points above the US Treasury yield.

Notably, China has issued sovereign dollar bonds in the past, including a three-year bond in October 2021 and a five-year bond in October 2020, via multi-tranche deals.

Bankers working on the deal highlighted that, for the first time in history, Beijing can borrow at the same interest rate as Washington. This bond sale reflects a trend gaining traction among nations that are capitalizing on low international debt issuance costs. In this light, the companies’ borrowing costs relative to US Treasuries have recently hit some of the lowest levels on record, analysts said.

In the past, China’s dollar-denominated debt has carried a premium due to perceived higher risks, such as currency value fluctuations and policy uncertainties.

Matching US yields represents a sharp improvement in China’s cost of borrowing, making it cheaper for the government to refinance its debt and fund infrastructure and technology projects.

China-US trade tension lessens amid Trump and Xi Jinping’s deal 

The bond issuance in China follows the easing of trade tensions between Washington and  Beijing. This was after US President Donald Trump and Chinese President Xi Jinping struck a deal for a one-year trade truce last week.

“Markets are filled with cash, and geopolitical tensions have lessened,” stated David Yim, who leads capital markets for Greater China and North Asia at Standard Chartered, one of the firms managing the deal. 

Another reliable source noted that investors were enthusiastic about Chinese sovereign dollar-denominated debt, which would broaden their investment options. They also stated that the limited number of bonds available prompted high demand exceeding supply.

On the other hand, order books, an electronic list that displays all the current buy and sell orders for a specific sovereign bond, disclosed that the five-year bond was subscribed to 30 times, with the central banks, insurance firms, and wealth funds accounting for half the bids. 

Asia rushes to issue dollar bonds, fueling stiff competition in the market 

Reports dated September this year mentioned that the capital of the United Arab Emirates, Abu Dhabi, issued $2 billion in 10-year bonds, with a spread of 0.18 percentage points above US Treasuries. 

In October of this year, the South Korean finance ministry issued $1 billion in dollar-denominated bonds, which are set to mature in five years. The dollar bonds featured a spread of 0.17 percentage points. 

However, China last sold dollar-denominated bonds in 2024, when it issued $2 billion of debt in Saudi Arabia. For this week’s transaction, a group of Chinese, US, and other foreign banks vowed to handle the process. 

The funds raised will be used for “general government purposes,” as noted in the bond’s term sheet. Additionally, the deal is scheduled to be concluded next Thursday. 

Meanwhile, although Chinese dollar-denominated debt previously traded at a negative spread compared to similar US debt, it is worth noting that these bonds have consistently had a higher price, despite the decrease in the spread.

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