China has begun promoting euro-denominated sovereign bonds to raise up to 4 billion euros ($4.6 billion), according to a person familiar with the matter, just days after a dollar-denominated bond offering saw strong demand.
The Ministry of Finance is seeking to price the four-year tranche of the dual offering at around 28 basis points above the mid-swap rate, according to the person who requested anonymity to discuss sensitive matters. The source added that the initial price guidance for the seven-year tranche is around 38 basis points.
Investor sentiment improves amid easing trade tensions
The euro-denominated issuance comes after China successfully sold $4 billion in dollar-denominated bonds about two weeks ago, at a time when easing trade tensions with the United States boosted investor sentiment toward the country.
Lee Zhou, head of Asian fixed income at Fidelity, said: “Global investors are buying Chinese sovereign bonds as part of a larger diversification strategy.”
He added that euro-denominated assets are in high demand thanks to the strong gains in the currency, declining credit spreads, and attractive returns.
Increasing role in the Euro market
This annual fundraising in global debt markets is part of Beijing’s goal to build deeper sovereign yield curves, which can serve as benchmarks for Chinese companies in pricing their own bonds. This is particularly important in the eurozone market, where liquidity remains relatively tight for Chinese borrowers.
The latest Chinese offering of dollar-denominated bonds attracted bids nearly 30 times the size of the deal.
Strong demand has helped the country price its bonds in roughly line with U.S. Treasury bonds, even though the United States has a much stronger credit rating and a much larger role in the global financial system.
