Beijing sells 4b euros in debt

▶ Aims to deepen EU ties, ease reliance on US-dollar assets

China issued 4 billion euros ($4.44 billion) of sovereign debt in Paris on Tuesday, its first euro-denominated sovereign bonds in 15 years, a move experts said could deepen China’s financial ties with the EU and lower reliance on US assets, which dominate China’s foreign bond holdings.

According to a statement from the Ministry of Finance on Wednesday, 2 billion euros of 7-year bonds were issued at a 0.197 percent yield, 1 billion euros of 12-year bonds with a 0.618 percent yield, and 1 billion euros of 20-year bonds at 1.078 percent.

This issue may soon be followed by corporate from China, which could give a boost to the European markets by offering financial instruments with good credit ratings and attractive interest rates, Lian Ping, chief economist of the Bank of Communications, told the Global Times on Wednesday.

“As government bonds in the European market have hit a new low, the Chinese sovereign bonds offer attractive options for investors,” Lian said. “Corporate bonds that may follow are likely to offer a bit higher interest rates.”

Half of European governments have issued bonds with negative yields. In France, the 10-year government bond has a negative 0.017 percent yield, and Germany’s benchmark 10year bond yield has fallen to a record low of negative 0.61 percent.

The Chinese sovereign issue was five times over-subscribed. European investors accounted for 57 percent, with 43 percent coming from other regions.

“The over-subscription is a clear indication of Europe’s confidence in the potential of the Chinese economy and in its credit,” Lian said.

“It is also a perfect time for the issue, as China can leverage Europe’s low interest rates.”

Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times that although they’re sometimes seen as an unconventional monetary tool, negative interest rates reflect widespread worries of decreasing demand for capital and Europe falling into a deflationary spiral.

“China’s eurobonds can stimulate borrowing in the European market and to some degree bring a much-needed boost to the local economy,” Xi said.

The issue is also a message from China that it is endeavoring to deepen financial ties with the EU, in an attempt to diversify its holdings of foreign bonds and cut its heavy reliance on US bonds.

“Although China does not intend to ‘decouple’ from the US financially, it is trying to bring more diversity to its foreign investments as uncertainties with the US have surged in recent years,” Lian told the Global Times.

Currently, US bonds make up around 83 percent of China’s foreign bond holdings, and stronger ties with the EU will lower financial risks as well as the costs for China, Lian said.