Chinas Ministry of finance issues Euro bonds with negative interest rate for the first time

 Chinas Ministry of finance issues Euro bonds with negative interest rate for the first time

This time, foreign banks such as Standard Chartered Bank (hereinafter referred to as Standard Chartered) and Deutsche Bank Group (hereinafter referred to as Deutsche Bank) also participated in the issuance of Euro bonds by the Ministry of finance of China. Since 2011, Standard Chartered has continued to provide support for Chinas Ministry of finances offshore bond issuance, including as a joint lead underwriter and joint bookkeeper, it has supported the Ministry of finances US dollar bond issuance last month and last years Euro and US dollar bond issuance; Deutsche Bank also assisted the Ministry of Finance in issuing Euro sovereign bonds for the second consecutive year.

Samuel Fischer, head of Deutsche Banks China debt capital market, told reporters that despite the market turmoil this year, Chinas Ministry of finance still issued Euro sovereign bonds again at the end of the year, reflecting the importance attached to the European market. This transaction mainly provides 10-year and 15-year bonds for international investors, and issues 5-year bonds for Hong Kong market. The pricing is 12 to 15 basis points below the secondary market valuation, reflecting the attractive spread offered to investors by the Ministry of finance through the issuance of new bonds. From a longer-term point of view, it also shows that there is still much room for global investors to increase their holdings in Chinese assets. There is no doubt that such bonds are of rare value.

Yan Shoujing, head of capital markets of Standard Chartered Bank in Greater China and northern Asia, told reporters: this is the second consecutive year since the Ministry of finance of China returned to the euro bond market last year. Like the US dollar bonds issued by the Ministry of finance last month, the Eurobonds have been heavily subscribed by international investors, among which the five-year bonds have in fact been issued at negative interest rates. Investors have diversified backgrounds, including central banks, sovereign funds and international asset management companies, all over Asia, Europe and the United States. As European investors are actively looking for high-quality long-term investment opportunities, the proportion of European investors in 15-year bonds is as high as 85%. Chinas novel coronavirus pneumonia epidemic is still grim, and the market is confident of Chinas strong economic recovery and development prospects.

Another person from the banking sector who has participated in Chinas sovereign bond issuance for many times told reporters of Chinas first finance and economics that financing has never been the main purpose of issuing sovereign bonds in China, and improving the yield curve is the most important thing. Four years ago, when the Ministry of Finance issued sovereign bonds for the first time, there was no yield benchmark to refer to. Therefore, we could only refer to the yields of sovereign bonds of neighboring Asian countries. But with the development of these years, Chinas yield curve has been constantly improved.

The reason why China has issued sovereign debt overseas in the past two years has been higher than before, the above-mentioned people also said that this is mainly to respond to the needs of overseas investors. At present, overseas investors have a large demand for replacement, and hope that the Ministry of finance of China can issue new securities with better liquidity. If not issued frequently, it will lead to lack of liquidity, and overseas investors also have the demand for long-term replacement. Generally, therefore, issuers need to issue at least once a year.

At the same time, the scale of issuance can be expanded because the overseas market of Chinas sovereign debt has been developing continuously, and the natural issuance volume and duration will be rich. Four years ago, the sovereign debt issued by the financial capital was mainly between 3-5 years, and the current duration has been 20 years.

It is worth mentioning that last year, Germany issued 30-year treasury bonds at a record low of - 0.11%. At that time, there was a heated discussion in the market. This is a landmark event. Germany is the first country in the world to issue 30-year treasury bonds with negative interest rate. However, industry insiders also told reporters that many investors subscribe for negative interest rate bonds, rather than holding them to maturity, they hope that the interest rate will become increasingly negative and sell them to realize the purpose of arbitrage.