Global demand for China's sovereign bonds viewed as confidence vote

Strong international demand for China's latest US dollar-denominated sovereign bond issuance underscores global investors' confidence in the country's economic growth prospects and its ongoing efforts to strengthen ties with global capital markets, financial professionals have said.

China's Ministry of Finance, on behalf of the central government, issued $4 billion sovereign bonds in the Hong Kong Special Administrative Region (SAR) on Wednesday. The offering comprised $2 billion in the three-year tranche with a yield of 3.65 percent, and $2 billion in the five-year tranche with a yield of 3.79 percent.

The offering was met with an enthusiastic market reception, attracting $118.2 billion in total subscriptions, about 30 times the issuance amount.

The investor base for the bonds was highly diversified and globally distributed, with investors from Asia, Europe, the Middle East and the United States accounting for 53 percent, 25 percent, 16 percent and 6 percent of the total, respectively.

By investor type, sovereign institutions made up 42 percent, banks and insurers 24 percent, funds and asset managers 32 percent, and dealers 2 percent. The bonds will be listed on the Hong Kong Stock Exchange, according to the ministry.

Deutsche Bank acted as joint global coordinator, billing and delivery bank, and US fiscal agent for the deal.

Samuel Fischer, head of onshore debt capital markets at Deutsche Bank China, said: "The issuance of US dollar bonds by the Ministry of Finance sends a positive signal to global markets, showcasing China's confidence and strength.

"Coming right after the release of recommendations for China's 15th Five-Year Plan and the conclusion of the APEC Economic Leaders' Meeting, the around $120 billion in total orders and 30 times oversubscription demonstrate strong market recognition."

The Hong Kong SAR is benefiting from China's renewed push for high-quality opening-up and renminbi internationalization, as well as the measures to strengthen its financial markets, said Fischer. "We are also seeing positive spillover effects, including growing interest from investors across Asia and the Middle East in engaging with the China market," he added.

HSBC acted as joint lead manager and bookrunner for the offering. David Liao, co-chief executive for Asia and the Middle East at HSBC, said the enthusiastic participation of international investors in this issuance reflects strong confidence in China's economic growth potential.

"China's recently announced recommendations for the 15th Five-Year Plan highlight goals such as expanding high-level opening-up, promoting the innovative development of trade, and creating greater space for two-way investment cooperation," said Liao. "These commitments to openness and collaboration have been well received by global markets. This issuance also underscores China's continued efforts to deepen interaction with global capital markets and provide international investors with more diverse, multi-currency asset allocation opportunities."

Financial professionals said the ministry's decision to issue US dollar sovereign bonds in Hong Kong once again underscores the SAR's role as an international financial hub and a crucial bridge connecting China with global capital markets, reflecting China's commitment to financial openness and stable, healthy economic development.

This marks the first time since 2021 that the ministry has issued US dollar-denominated sovereign bonds in Hong Kong, signaling strong central government support for the region's development as an international financial center, said Liao.

The move aims to expand the depth and breadth of Hong Kong's bond market, establish a more robust offshore yield curve, and provide a pricing benchmark for Chinese companies issuing US dollar bonds overseas.

This issuance will further enhance Hong Kong's position as a leading bond market in Asia, he added.