Beijing sold dollar debt directly to US buyers for the first time, with a $6bn offering drawing record demand on the back of China’s economic recovery from coronavirus and despite tensions with Washington.
The billions of dollars of bonds sold by China’s finance ministry on Thursday drew orders worth more than $27bn, or roughly $10bn more than an offering of the same size last year, according to bankers on the deal.
The Chinese government’s move to directly tap US investors just weeks before a presidential election reflects confidence that calls to decouple the world’s two biggest economies will yield little meaningful change, analysts said.
Bankers involved in the bond sale said US demand was strong, with about 15 per cent going to American investors.
The bond sales received “a strong reception from US onshore real money investors”, said Samuel Fischer, head of China onshore debt capital markets at Deutsche Bank, which helped arrange the deal.
Unlike previous issuance, the debt was sold under 144A/Reg S terms, giving institutional investors in the US the chance to buy in for the first time.
“Not many people probably expected them to do a 144A because of the general market backdrop of US-China relations,” said one banker. But frictions between Beijing and Washington had no impact “at all” on demand from US buyers, which included an American pension fund, the banker added.
Bankers pointed to the strength of China’s economic rebound from coronavirus relative to that elsewhere as one reason for strong demand. “This is the investor community showing confidence in [China’s] recovery,” said another banker on the sale, who added that “US investor participation in Chinese paper is not reduced by any means”.
Investors were also drawn to the Chinese bonds’ high yields compared to those issued by the US government. The bonds carried maturities of three, five, 10 and 30 years with coupons of 0.40, 0.55, 1.20 and 2.25 per cent, respectively. That put the yield on the 10-year bond at about 0.5 percentage points above the equivalent tenor US Treasury.
Tensions between the two powers have been inflamed by China’s crackdown on Hong Kong, while US President Donald Trump blames Beijing for the global spread of Covid-19.
Frances Cheung, head of macro strategy for Asia at lender Westpac, said the issuance suggested Beijing believed restrictions on access to dollar funding were “very unlikely to become a policy option” for Washington.
Hayden Briscoe, head of fixed income for Asia Pacific at UBS Asset Management, said the bonds would help “set the benchmark” for Chinese corporates such as petrochemical groups Sinopec and Sinochem, which also borrow in dollars.
“A lot of their expenses are in US dollars, and they borrow in the dollar market to match funds to that,” he said.
He added that the bonds benefited from strong demand partly due to their scarcity value. “There’s so few of them and they suit sovereign wealth fund type buyers — they tend to just disappear,” he added.
Other arrangers of the bond sale included Standard Chartered, Bank of America, Citigroup, Goldman Sachs and JPMorgan.