Via Yahoo Finance

Bloomberg

China Euro Bond Draws Bumper Demand Amid Low Borrowing Costs

(Bloomberg) — Investors’ thirst for euro bonds from the Chinese sovereign shows no sign of abating, as the nation once again pulled in huge orders for a triple-tranche sale in the common currency.Demand for a three-part Ministry of Finance deal has topped 17.8 billion euros ($21.2 billion), according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. That’s just short of the near-20 billion euros of orders the sovereign amassed from its first euro offering in 15 years in November 2019, according to data compiled by Bloomberg.The nation is seizing on Europe’s ultra-low borrowing costs as it stages its return to the region’s debt market. Pricing has tumbled on all three tranches, led by about a 20 basis points plunge for a 15-year note, the longest maturity on offer.China’s offshore debt sales in recent years have attracted global buyers despite concerns over a decoupling with the U.S. arising from trade tensions. The sovereign’s $6 billion dollar bond sale in October was boosted by strong interest from U.S. investors. Last year’s euro offering enjoyed blowout demand of nearly 20 billion euros, with most orders coming from funds in Europe, a region beset by negative-yielding securities.Average yields on investment-grade euro bonds are below 0.3%, the lowest since September 2019, according to a Bloomberg Barclays Index. 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.“Initial price talk of China MoF’s EUR bonds appears relatively attractive versus secondary levels,” said Todd Schubert, head of fixed-income research at Bank of Singapore. “However, spreads will undoubtedly compress as the deal goes and final pricing will likely be less compelling.”Demand from investors may be greater for euro-denominated bonds given consensus expectations for the currency to remain stable or even stronger compared to a weakening U.S. dollar over the coming months, he added.Yield CurveThe new bonds will help develop China’s sovereign benchmark yield curve for euro-denominated debt, adding to the 4 billion euros of notes across seven, 12 and 20-year maturities which sold last year, the first notes in the currency in 15 years.“China bonds in euros are still pretty scarce, so we are looking forward to new supply,” Patrick Sutschitsch, a fixed-income fund manager at Gutmann Kapitalanlage AG, said before initial pricing details were announced. “I think there will be a lot of demand for new bonds.” They are able to to diversify their currency mix at very low costs currently, he added.The Ministry of Finance said in its 2017 resumption of dollar-debt sales it would help build a benchmark yield curve for Chinese issuers, which range from developers to local authorities. China’s offshore corporate bond market currently has about 40 billion of euro-denominated debt outstanding compared to about $820 billion of dollar bonds.The Ministry of Finance didn’t immediately reply to a fax sent by Bloomberg seeking comment.READ MORE: U.S. Buyers Fuel Bumper Demand for China’s $6 Billion Bond(Updates with order book size and spread in second and third pars, table)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

READ ALSO  Pennsylvania Republicans File Emergency Request To Block Vote Certification