For the first time in history, China's "borrowing rate" has equaled that of the United States

The US dollar sovereign bonds issued by China's Ministry of Finance in Hong Kong have reached a historic milestone. The pricing of its three-year bonds is on par with the yield of US Treasury bonds, marking the first time that China's borrowing costs in US dollars have equalized those of the United States.

On Thursday, China's Ministry of Finance issued $4 billion in sovereign bonds. The coupon rate of the three-year bonds was 3.625%, comparable to the yield of US Treasuries of the same maturity. The pricing of the five-year bonds was only 0.02 percentage points higher than that of US Treasuries. Previously, although Chinese dollar bonds had experienced negative carry trade in the secondary market, they always maintained a premium when issued in the primary market.

The transaction attracted strong investor demand. The five-year bond was oversubscribed by 30 times, with more than half of the orders coming from central banks, sovereign wealth funds and insurance companies.

David Yim, head of capital markets for Greater China and North Asia at Standard Chartered Bank, said, "Market liquidity is abundant and geopolitical tensions have also eased." This environment offers a window for multiple sovereign issuers, including China, to conduct international financing at historically low premiums.

The financing cost of sovereign bonds has reached a historical low

A syndicate composed of Chinese banks, US banks and other foreign banks underwrote Thursday's transactions. According to the bond terms and conditions prospectus, the raised funds will be used for "general government purposes", and the transaction will be settled next Thursday.

The order book shows that institutional investors have shown a strong interest in the bond. Long-term allocation investors such as central banks, sovereign wealth funds and insurance companies occupied more than half of the subscription quota for five-year bonds, reflecting the market's recognition of China's sovereign credit.

China's last issuance of US dollar sovereign bonds was in 2024, when it sold $2 billion worth of bonds in Saudi Arabia. This time, 4 billion US dollars were issued in the Hong Kong market, doubling the issuance scale compared to the last time. This indicates that against the backdrop of improved financing costs, China has increased the issuance of US dollar bonds.

At present, many countries are seizing the opportunity of the fact that the financing cost of US dollar bonds has dropped to a historical low to issue bonds. In September this year, ABU Dhabi issued $2 billion in 10-year bonds, with a spread of only 0.18 percentage points over US Treasury bonds. In October, South Korea's Ministry of Finance issued $1 billion in five-year bonds with a spread of 0.17 percentage points.

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