China is planning to sell $3 billion in U.S. dollar bonds this month, wooing foreign investors at a time of heightened trade tensions with the U.S. and turbulence in its own stock market. If successful, it would be the country’s second dollar-bond sale in a year and only its third since 2004. China’s Ministry of Finance has tapped a dozen Chinese and global investment banks to handle the offering and plans to market the securities to investors next week, according to people familiar with the matter.
China intends to sell bonds that mature in five, 10 and 30 years and become a regular issuer of sovereign debt, the people added. The offering is coming at a delicate time for the world’s second-largest economy. China’s gross-domestic-product growth is slowing and the pace of investment in factories and public-works projects has cooled this year. The U.S. has imposed tariffs on hundreds of billions of dollars of Chinese exports and is threatening more of them. China’s stock-market benchmark, the Shanghai Composite Index, is down 15% this year.
Despite those issues, debt investors still regard China’s creditworthiness as very strong, thanks to the country’s robust foreign-currency reserves and large trade surplus. In October 2017, the country issued $2 billion in five- and 10-year bonds at slightly higher interest rates than what the U.S. Treasury was paying to borrow at the time, even though China’s credit rating is three to four notches below that of the U.S. That offering was multiple times oversubscribed by Chinese and foreign investors.
Benchmark U.S. Treasury yields have since risen, following multiple interest-rate increases by the Federal Reserve. Prices of China’s bonds issued a year ago have fallen as their yields have climbed. But the securities that mature in 2022 currently yield about 3.2%, according to Refinitiv data, or about 0.2 percentage point above comparable Treasurys—more than its 0.15 percentage-point spread a year ago.
The 10-year bonds China issued a year ago now yield around 3.5%, about 0.3 percentage point above comparable Treasurys, versus 0.25 percentage point last October. The coming sovereign-bond sale will help set new interest-rate benchmarks for Chinese companies and municipalities that have been active issuers of debt in the U.S. dollar-bond market in recent years. If China can borrow from global markets at low interest rates like it did a year ago, that could help other Chinese debt issuers raise money by selling dollar debt.