China and the U.S., forever (financially) intertwined . . .
Yesterday, for the first time, Beijing sold U.S.-dollar-denominated debt directly to U.S. investors. The US$6B bond offering drew record demand, with orders totalling more than US$27B. Even weeks before a contentious U.S. presidential election – the results of which could further exacerbate bilateral tensions – U.S. investors appear confident and eager to buy Chinese debt. Despite battling over trade, tech, and geopolitics, the China and U.S. financial systems are fated to remain tightly connected.
China’s economic rebound . . .
According to a quote by an American banker in Thursday’s Financial Times, tensions between China and the U.S. had no impact “at all” on U.S. buyers’ demand. Such a strong showing by U.S. buyers is a reflection of the basic strength of the bond. The Chinese bond carries maturities of 3, 5, 10, and 30 years, with coupons of 0.40, 0.55, 1.20, and 2.25 per cent, respectively. This places the yield on the 10-year bond at approximately 0.5 percentage points above the equivalent United States Treasury bond.
China bets US will not restrict dollar-denominated funding . . .
The bond issue is a strong sign that Beijing believes Washington will never exercise a policy option restricting China’s access to dollar funding. If anything, this issuance will help set the benchmark for other Chinese corporations such as Sinopec and Sinochem to issue debt to U.S. buyers in USD. While Beijing and Washington may be knee-deep in geopolitical battles, Wall Street is still happily pursuing long-term connections with China.
- China Economic Review: Beijing’s first bond offer to US investors draws record demand
- Financial Times: Beijing’s first bond offer to US investors draws record demand
- Reuters: China raises $6 billion as U.S. investors look past political tensions