A towering Chinese flag is engulfed by balloons at the end of a military parade to make the 70th anniversary of the founding of the People's Republic of China in Beijing's Tiananmen Square on October 1. Photo: AFP / Greg Baker

China priced a $6 billion four part deal in a sovereign bond offering that will serve as a pricing benchmark for borrowers from the world’s second largest economy. Investor demand for these bonds was massive with orders in excess of $20 billion within a few hours of the deal announcement.

In a surprise move, the sovereign announced an issue of 3-,5-,10- and 20-year bonds, which came just two weeks after completion of a 4 million euro deal. The bonds were priced to yield 1.929%, 1.996%, 2.238% and 2.881% respectively.

The bonds were initially guided to yield around 60, 65, 70 and 80 basis points over benchmark US Treasuries but the strong orders allowed it to price the tranches at 35, 40, 50 and 70 basis points above.

In 2017, China sold 5- and 10-year bonds to raise $2 billion in aggregate and followed it the next year with a $3 billion sale of 5-, 10- and 30-year bonds.

“The new issues, especially the 20-year bond, will help to populate the sovereign yield curve and provide a more complete benchmark against which strong quasi-sovereign issuers may price off,” Jason Tan, an analyst with independent research firm CrediSights, said in reference to the gap between the 10- and 30-year part of the curve.

Those issuers, Tan said, include policy banks and SOEs under the State-owned Assets Supervision and Administration Commission (SASAC), the central body that oversees China’s sprawling state sector. “The potentially narrower spreads could also support lower financing costs for future Chinese issuers.”

Bank of China, Bank of Communications, China Construction Bank, China International Capital Corporation, BofA Securities, Crédit Agricole, CTBC Bank, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan, Mizuho Securities and Standard Chartered Bank are the joint lead managers and joint bookrunners for the four-tranche offering.

Earlier this month China sold euro-denominated notes yielding 0.197%, 0.618% and 1.078% for bonds maturing in 2026, 2031, and 2039. This led analysts to expect the latest sale to be priced tighter relative to the 2017 and 2018 offerings.

“The initial pricing against US Treasuries was slightly wider perhaps due to external uncertainties and the continued slowing of the Chinese economy but there is a strong technical bid from onshore entities including state-owned financial institutions and large SOEs,” Tan said.

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