(Bloomberg) -- China saw higher premiums than in 2018 in initial marketing for its latest sale of dollar bonds, the biggest offering yet and the third in three years.
“The pricing looks wider compared to previous offerings,” said Wei Liang Chang, a macro strategist with DBS Bank Ltd. in Singapore. “Trade uncertainty and China’s growth slowdown have induced a slight increase in the risk premium, but China’s offering indicates that it still holds fast to its strategy of deepening the dollar-bond market.”
China on Tuesday announced initial price guidance for its five-year notes at 65 basis points area over comparable U.S. Treasuries. That compares with 50 basis points area last year and 30 to 40 basis points in 2017. The pricing could still change as the deal proceeds.
The multi-tranche offering drew orders of more than $15 billion as of this morning, according to people familiar with the matter. That’s more than double the $6 billion target. The sale also includes three-year, 10-year and 20-year securities, helping to build out a benchmark yield curve for Chinese issuers, which range from private companies to local authorities.
Read the full initial pricing guidance for the sovereign offering here.
Wonnie Chu, managing director of fixed income at GaoTeng Global Asset Management Ltd., predicted that the premiums would come down in the final pricing.“We expect there will be strong investor appetite for the deal on demand for quality issuers and we see mainly bank support for sovereign,” she said.
The order book for last year’s sale showed diminished interest from U.S.-based investors amid the escalation in the trade war. The bulk of dollar bonds sold by Chinese issuers is typically taken up by Chinese buyers -- they’re a convenient place for banks to invest their foreign-currency deposits.
Century Bond
With the latest sale, China will have dollar securities outstanding with maturity dates ranging from 2022 to 2096 (the result of a small century bond sold in the 1990s). There will be an increasing variety of maturities off which Chinese corporate debt can price, with sovereign benchmarks at maturities from 2022 to 2048 of at least half a billion dollars each.
The total Chinese dollar bond market now tops $740 billion, according to data compiled by Bloomberg, and issuance so far this year has run at a record pace. On a single day in early November, some six property developers were selling dollar securities.
Earlier this month, China also sold euro debt, the first time since 2004 that it issued in that currency. That deal saw blowout demand, with a majority orders coming from European funds in a region that’s been beset by negative-yielding securities.
Read more here about how China’s dollar bond cuts against concerns about a financial decoupling with the U.S.
(Updates with order book size in fourth paragraph)
