UPDATE 2-China lays out pricing for rare euro-denominated government bond
(Adds detail, investor comment)
BEIJING/SHANGHAI, Nov 18 (Reuters) – China was giving initial pricing for only its third-ever euro-denominated government bonds on Wednesday, in its latest move to expand its presence in international borrowing markets.
Banking sources said the pricing for new five-year bonds was 45 basis points over the ‘mid-swap’ level, the average interest rate for borrowing in euros over that period.
For 10-year bonds it was 70 basis points over mid-swaps. Fifteen-year bonds were set at 90 basis points over mid-swaps, although final pricing often drops if demand is strong. The hope is that will be the case.
“For euro sovereign debt, the scale is about 4 billion (euros), basically the same as last year,” one source told Reuters. Anything higher would be a record amount. “It is not exactly screamingly cheap,” Esther Law, a fund manager at Europe’s largest fund firm, Amundi, said of Wednesday’s pricing. “But I do think because of the rarity of the euro issuance that developed-world fixed-income managers will welcome anything with positive yield”.
Global interest rates having been pushed to record lows by this year’s coronavirus crisis. Nearly all short- and medium- term European debt now carries negative rates, meaning investors effectively pay to hold it.
China has been steadily building its capital markets in recent years. Offering bonds in alternative currencies to the yuan or dollar is seen as an important part of that process.
It also comes amid a rush of demand for emerging-market debt following this month’s COVID vaccine breakthroughs and U.S. election win for Joe Biden, which has lifted hopes the U.S.-China trade war of recent years will be dialed down.
U.S. President Donald Trump’s administration imposed new sanctions on China just last week. They effectively stop U.S.-based investors from buying the debt or shares of a number of household Chinese companies firms.
China’s finance ministry did not immediately respond to a request for comment, but it follows a similar offering a year ago when Beijing sold its first euro-denominated government debt in 15 years.
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