(Bloomberg) — China is pressing ahead with a dollar bond sale amid growing uncertainties over U.S. elections and tensions with Washington.
For a fourth straight autumn, China is looking to sell dollar notes with three-year, five-year, 10-year and 30-year maturities Wednesday, according to people familiar with the matter who aren’t authorized to speak publicly. Some of the shorter-dated bonds have lower premiums than in 2019 during the initial marketing phase of the nation’s last dollar bond sale.
The country’s Ministry of Finance is seeking to raise about $6 billion via the new notes, Bloomberg reported previously. The sale had attracted orders of about $28 billion as of around 4:30 p.m. in Hong Kong, according to people familiar with the matter. The notes are expected to price overnight.
The Ministry of Finance is opening up its bond sale to a broad pool of U.S. investors for the first time, potentially diversifying its investor base and setting aside concerns of decoupling in credit markets. The deal is set to include China’s debut issuance of 144A notes, as well as previously sold Regulation S senior bonds, allowing a wider range of potential international investors compared to last year’s jumbo global offering of $6 billion dollar bonds and 4 billion euro notes.
“144A issuance shows that China is keen to promote its USD bonds globally, including to U.S. investors,” according to Chang Wei Liang, a macro strategist at DBS Bank Ltd. in Singapore. “China has taken a pragmatic approach to deepen and liberalize its financial markets, and this is likely to continue with or without political tensions with the U.S.”
Officials at the ministry weren’t immediately available to comment.
The fresh sovereign debt sale this week comes as uncertainties ahead of the U.S. elections in November are beginning to weigh on investor sentiment. Issuing the notes in October helps avoid potentially less receptive market conditions, according to analysts.
China’s business-as-usual approach contrasts with rising concern about a decoupling between the world’s two largest economies. 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.
Here’s what experts think about the sale:
Thu Ha Chow, a portfolio manager at Loomis Sayles Investments Asia Pte.
“The initial price talk looks cheap to the existing China Sovereign bonds and also to other Asian Sovereign bonds such as the Philippines, so good value for the rating”It will be interesting to see if the 144A format actually leads to increase in participation given political tension with the U.S., though Chinese investors expected to anchor the deal144A format means deal will be eligible to the Emerging Markets Bond Index
Angus To, deputy head of research at ICBC International Holdings
“We believe there is room for further tightening in the final pricing, particularly for the 3-year and 5-year tranche”Initial price guidance is offering some discount to the existing bonds, particularly at the shorter-endBonds sold last year maturing in 2022 and 2024 are trading at spreads of around 20bps and 30bps, as compared with the 50bps and 60bps in the IPT for the 3-year and 5-year tranche
Initial Pricing
China is selling notes with tenors of three years, five years, 10 years and 30 years, according to a person familiar with the matter. The initial guidances are:
3-year bonds: +50bp area over treasuries5-year bonds: +60bp area over treasuries10-year bonds: +75bp area over treasuries30-year bonds: +110bp area over treasuries
(Adds details on orderbook in the third paragraph)
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