China Markets Euro Bond Deal After Blowout Demand Last Year

Investors in Europe are getting their once-a-year opportunity to snap up Chinese sovereign debt in volume as the nation returns with a euro bond sale that stands to benefit from ultra-low borrowing costs there.

The country’s Ministry of Finance is marketing five, 10 and 15-year euro-denominated bonds which are expected to price Wednesday, according to a person familiar with the matter, who isn’t authorized to speak publicly and asked not to be identified.

TenorInitial Price Talk
5-yearMS +45bps
10-yearMS +70bps
15-yearMS +90bps

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 wasboosted by strong interest from U.S. investors. Last year’s euro note offering enjoyedblowout demand 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 last year, 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.

The new bonds, if sold, 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 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

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.

— With assistance by Ameya Karve, and Xize Kang

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