China Targets U.S. Buyers with $6 Billion Dollar Debt Sale

© Bloomberg. A Chinese one-hundred yuan banknote is placed in front of a U.S. one hundred dollar banknote in an arranged photograph in Hong Kong, China, on Monday, April 15, 2019. China's holdings of Treasury securities rose for a third month as the Asian nation took on more U.S. government debt amid the trade war between the world’s two biggest economies. Photographer: Paul Yeung/Bloomberg

(Bloomberg) -- China is pressing ahead with a dollar bond sale amid growing uncertainties over U.S. elections and tensions with Washington.

For a fourth straight autumn, China is looking to sell dollar notes with three-year, five-year, 10-year and 30-year maturities Wednesday, according to people familiar with the matter who aren’t authorized to speak publicly. Some of the shorter-dated bonds have lower premiums than in 2019 during the initial marketing phase of the nation’s last dollar bond sale.

The Ministry of Finance is opening up its bond sale to a broad pool of U.S. investors for the first time, potentially diversifying its investor base and setting aside concerns of decoupling in credit markets. The deal is set to include China’s debut issuance of 144A notes, as well as previously sold Regulation S senior bonds, allowing a wider range of potential international investors compared to last year’s jumbo global offering of $6 billion dollar bonds and 4 billion euro notes.

“144A issuance shows that China is keen to promote its USD bonds globally, including to U.S. investors,” according to Chang Wei Liang, a macro strategist at DBS Bank Ltd. in Singapore. “China has taken a pragmatic approach to deepen and liberalize its financial markets, and this is likely to continue with or without political tensions with the U.S.”

Officials at the ministry weren’t immediately available to comment.

The fresh sovereign debt sale this week comes as uncertainties ahead of the U.S. elections in November are beginning to weigh on investor sentiment. Issuing the notes in October helps avoid potentially less receptive market conditions, according to analysts.

China’s business-as-usual approach contrasts with rising concern about a decoupling between the world’s two largest economies. The Ministry of Finance said during its 2017 resumption of dollar-debt sale that it would help build a benchmark yield curve for Chinese issuers, which range from developers to local governments.

Initial Pricing

China is selling notes with tenors of three years, five years, 10 years and 30 years, according to a person familiar with the matter. The initial guidances are:

• 3-year bonds: +50bp area over treasuries
• 5-year bonds: +60bp area over treasuries
• 10-year bonds: +75bp area over treasuries
• 30-year bonds: +110bp area over treasuries

(Adds details on 144A bond in third paragraph and quote in fourth paragraph)

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