China has sold $3 billion of sovereign dollar bonds, its third such sale in the last 14 years, drawing healthy investor demand against a backdrop of global market turmoil and a trade war with the United States. China sold $1.5 billion of five-year bonds at 3.25 percent, $1 billion of 10-year bonds at 3.5 percent and $500 million of 30-year bonds at 4.00 percent, the finance ministry said on Friday.
China managed to tighten the spread with U.S. Treasuries even as markets suffered a global rout on Thursday after Wall Street’s worst losses in eight months. The bonds were priced at 30, 45 and 70 basis points (bps) over U.S. Treasuries for the five-year, 10-year and 30-year bonds, respectively.
That compared to an initial guidance of 50 bps, 65 bps and 90 bps for the five-, 10- and 30-year tranches, respectively. Investors put in $13.2 billion of final orders, almost half of them for the five-year tranche. Compared to last year though, when investors put in orders more than 10 times the $2 billion on offer, demand was less robust.
The backdrop to this year’s bond sale is very different, with China locked in a trade war with the United States in which neither side is showing any sign of backing down.
China’s currency, the yuan, is also down about 10 percent since the first salvos were fired in the trade war in March. Spreads between the Chinese 10-year benchmark and U.S. 10-year Treasuries stood at 43 bps on Friday.
Banks took almost half of the 2023 and 2028 bonds while fund managers took 65 percent of the 2048 bond. The 30-year bond proved the most popular with U.S. investors, who accounted for 6 percent, while European and Asian investors accounted for 35 percent and 59 percent, respectively.
China hired 12 banks including Bank of China, China Construction Bank, Deutsche Bank, Goldman Sachs, HSBC and J.P. Morgan for the deal.