China sells first sovereign bond at negative interest rate, taking advantage of record low borrowing costs to raise capital
- China’s Ministry of Finance sold US$4.74 billion of euro-denominated sovereign debt on Wednesday
- Sale included China’s first negative-yielding bond since returning to international debt markets in 2017
The Ministry of Finance sold about €750 million worth of a five-year note bearing an interest rate of -0.15 per cent overnight on Wednesday, the smallest tranche of a €4 billion (US$4.74 billion) sale of euro-denominated debt.
The order book attracted €18 billion in bids, or 4.5 times the entire offer. The government sold €2 billion of a 10-year tranche, and €1.25 billion in the 15-year tranche, according to a term sheet seen by South China Morning Post.
“Similar to last year, both the 10- and 15-year tranches attracted a very strong order book from global investors, offering a positive yield for China sovereign risk which remains a very compelling story,” said Sam Fischer, head of China onshore debt capital markets at Deutsche Bank.
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Foreign investors held about 3 trillion yuan (US$457 billion) of Chinese bonds at the end of October, with the Chinese debt market expanding by 40 per cent annually over the past three years.
Investors who took part in the Ministry of Finance’s offering included central banks, sovereign wealth funds and asset managers from Europe, Asia and the US, according to David Yim, head of capital markets for Greater China and North Asia at Standard Chartered. European investors accounted for 85 per cent of the 15-year tranche, he said.
“This once again demonstrates that the international investors are full of confidence in China’s strong economic rebound and its future developments despite the lingering global Covid-19 pandemic,” Yim said.
Global debt is on track to exceed US$277 trillion in 2020, spurred by a US$15 trillion surge in government and corporate borrowings in the first nine months, as the pandemic continues to weigh on growth, according to a new report by the Institute of International Finance. Emerging market debt accounted for 248 per cent of GDP in the third quarter.
“The pace of global debt accumulation has been unprecedented since 2016, increasing by over US$52 trillion,” said the Institute of International Finance’s director of sustainability research Emre Tiftik and associate economist Khadija Mahmood. “As a result, there is significant uncertainty about how the global economy can deleverage without significant adverse implications for economic activity. The next decade could bring a reflationary fiscal response, in sharp contrast to the austerity bias in the 2010s.”
The bank has maintained it has a “good ongoing working relationship” with the Ministry of Finance and is a “leading foreign bank” for the issuance of G3 debt in mainland China.