China Nears First U.S. Dollar Bond Sale Since 2004
By Manju Dalal
The Chinese government announced plans Wednesday to raise $2 billion from international debt markets, its first such sale in over a decade.
China's Ministry of Finance said it intends to launch an offering of U.S. dollar sovereign bonds in Hong Kong in coming days. Half of the $2 billion in debt will consist of five-year bonds and the other half will be 10-year bonds, it said in a statement.
Sovereign bond yields have tumbled to multiyear lows. If China can borrow from global markets at very low interest rates, it could signal investors' confidence in China's financial system after sovereign debt rating downgrades by international ratings firms this year.
Standard & Poor's last month lowered China's sovereign rating by a notch to A+, citing increased economic and financial risks in the country. The move drew Beijing's ire, and the Ministry of Finance at the time criticized the downgrade as "a misreading of China's economy." S&P's rating is now in line with that of Moody's Investors Service, which downgraded China in May this year.
China last issued sovereign bonds in 2004. This U.S. dollar debt issuance would be largely symbolic and create interest rate benchmarks that other borrowers can reference. Beijing is unlikely to actually need to raise U.S. dollars, and if it did need funds, its efforts to internationalize the yuan would have called for the issuance of yuan-denominated debt.
The bonds could yield less than 0.5 percentage point over comparable U.S. Treasurys, estimate some analysts and investors. The yield on the five-year Treasury was 1.943%, while the 10-year Treasury yield was at 2.343%.
The bonds are expected to see strong demand from both overseas and Chinese investors. China has lined up multiple international and Chinese investment banks to help with the sale.
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