U.S. Buyers Fuel Bumper Demand for China’s $6 Billion Debt

(Bloomberg) -- China drew more than $27.2 billion in orders for its $6 billion dollar bond, underscoring strong demand for its sovereign debt in an environment of low yields across the world.

The Ministry of Finance priced the jumbo-sized notes with three-year, five-year, 10-year and 30-year maturities, with an orderbook more than 4.5 times the issuance size, according to a person familiar with the matter who isn’t authorized to speak publicly. Premiums tightened as much as 30 basis points from initial pricing guidance.

China’s dollar debt offering for the fourth straight year came amid growing uncertainties about U.S. elections and tensions with Washington. The robust demand for the deal shows the latter’s appeal to international investors as global interest rates stay depressed following unprecedented monetary policy easing by major central banks. China’s quick rebound from a pandemic-induced economic slump also boosted investor confidence.

Demand was significantly higher than last year which saw more than $16.5 billion orders for a multi-tranche dollar deal of the same size.

• See here for the full breakdown on this year’s allocation.
• Here for the 2019 allocation.
• And here for the 2018 allocation figures.

The deal included the debut issuance of 144A notes, a format that opened the sale up to a broad pool of U.S. buyers for the first time and helps diversify the investor base. The orderbook drew more than $4.6 billion from these buyers, according to a person familiar with the deal.

It’s a significant step for China which has long sought to deepen its offshore credit market and broaden its access to global investors for the nation’s corporate issuers too. The Ministry of Finance said during its 2017 resumption of dollar-debt sale that it would help build a benchmark yield curve for Chinese issuers, which range from developers to local governments.

“Perceived unlimited central bank support is anchoring investment in credit markets,” said Todd Schubert, head of fixed-income research at Bank of Singapore. Other tailwinds include the high outstanding value of negative yielding bonds this year, waning dollar strength and China’s effective management of the coronavirus crisis, he said.

The sale is also expected to boost issuance from other higher quality corporate issuers in the region. “China’s sovereign bond deal is expected to set the tone for higher-rated issuers and encourage those waiting on the sideline to come to the primary market over the coming months,” said Avinash Thakur, head of Asia Pacific debt origination at Barclays Capital Asia Ltd.

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With assistance from Bloomberg