China Plans Euro Bond Market Return as Tensions With U.S. Mount
China Plans Euro Bond Market Return as Tensions With U.S. Mount
(Bloomberg) -- The People’s Republic of China is turning to Europe’s bond market for funding, as tensions between Beijing and Washington flare up.
The country hired a number of Chinese and international banks to arrange a potential euro-denominated deal that is expected as early as Nov. 18, according to a person familiar with the matter, who isn’t authorized to speak publicly and asked not to be identified. The planned benchmark-size offering will focus on notes across five, 10 and 15-year maturities, the person said.
The announcement came after a senior U.S. administration official signaled that President Donald Trump plans new hard-line moves against China in the remaining weeks of his term, potentially tying the hands of President-elect Joe Biden. China’s offering will follow a 4 billion-euro ($4.74 billion) deal from November last year, the country’s first visit to the European market since 2004.
“Developing a larger euro bond market serves to diversify China’s reliance on dollar issuance, with political risks underscored by Trump’s recent targeting of Chinese military-linked companies,” said Chang Wei Liang, a macro strategist at DBS Bank Ltd. in Singapore. Also, “euro-denominated financing is rather attractive at this juncture, with yields on China’s current euro bonds having slipped to record lows,” he said.
The yield on China’s 0.125% euro bond due November 2026 is hovering near 0.11%, two basis points above a record low reached in early March, according to data compiled by Bloomberg. China’s offering from last year drew 19.7 billion euros of bids, with the majority of orders coming from funds in Europe, a region beset by negative-yielding securities.
U.S. actions against China could include protecting U.S. technology from exploitation by China’s military, countering illegal fishing and more sanctions against Communist Party officials or institutions causing harm in Hong Kong or the far western region of Xinjiang.
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