China Raises $4.75 Billion as Euro-Bond Sale Draws Bumper Bids

China priced its first euro-denominated bond sale in about a year, after taking advantage of ultra-low borrowing costs to help pare its reliance on dollar debt.

The 4 billion-euro ($4.75 billion) three-part offering drew more than 17 billion euros of bids, according to a person familiar with the matter, who asked not to be identified because they aren’t authorized to speak about it. Pricing tumbled on all three tranches, led by a drop of about 20 basis points for a 15-year note, the longest on offer.

TenorInitial Price Talk (bps)Final Price Guidance (bps)Final Terms
5-yearMS +45 areaMS +30 (the number)MS +30
10-yearMS +70 areaMS +55 (the number)MS +55
15-yearMS +90 areaMS +70 (the number)MS +70

The large order book extends a run of strong demand for Chinese offshore debt, as a global hunt for yield outweighs concerns about decoupling with the U.S. and trade tensions. A $6 billion dollar bond sale in October was boosted by strong U.S. interest, while a euro sale last year -- the first in 15 years -- enjoyed blowout demand of nearly 20 billion euros.

China is “able to diversify their currency mix at very low costs,” Patrick Sutschitsch, a fixed-income fund manager at Gutmann Kapitalanlage AG, said before the deal. It might make sense to do that “under current circumstances,” he said.

The Chinese Ministry of Finance didn’t immediately reply to a fax sent by Bloomberg seeking comment.

The yield on China’s 0.125% euro bond due November 2026 is hovering near 0.09%, a record low, according to data compiled by Bloomberg.

Yield Curve

The new bonds will help develop China’s sovereign benchmark yield curve for euro-denominated debt, adding to the 4 billion euros of notes sold across seven, 12 and 20-year maturities last year.

That could in turn boost euro bond sales by Chinese issuers, which range from developers to local authorities. China’s offshore corporate bond market has about 40 billion of euro-denominated debt outstanding compared to about $820 billion of dollar bonds.

Expectations for the euro to remain stable or even strengthen against a weakening dollar may also boost investor demand for single-currency notes, said Todd Schubert, head of fixed-income research at Bank of Singapore.

©2020 Bloomberg L.P.

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