High demand for China state bonds sends 10-yr yields lower

High demand for China state bonds sends 10-yr yields lower
Written by:
Michael Harris
15th October, 19:52
Updated: 15th October, 19:53
  • China's first direct bond sale in the U.S. attracted huge demand, helping government to raise $6 billion
  • Today’s low of 95.52 represents the lowest yield since April 2017
  • International investors have so far under-invested in the Chinese domestic bond market

A great demand for China state state bond sent yields lower to hit the lowest percentage since April 2017. 

Fundamental analysis: US investors rush for China state bonds

China’s first direct bond sale in the U.S. has attracted huge demand. The government raised $6 billion in sales after attracting around $30 billion in bids to achieve lower costs of the offering.

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“The demand for the Chinese U.S. dollar bond sets the tone for more high-grade, dollar-bond issuances from Chinese corporate and supra-national entities in the Asia-Pacific region,” said Hong Kong-based Avinash Thakur, head of debt origination for Asia-Pacific at Barclays.

“Such issuers have been waiting to tap the market, and the inherent demand will boost confidence. There continues to be good appetite for [Chinese] investment-grade bonds and high-yield debt from strong names.”

The investment management company BlackRock is bullish on the onshore bond market in China, whose economic data and constant monetary policy backing are ensuring sustained economic rebound, said Neeraj Seth, BlackRock’s head of Asian credit.

“We still see China bond market to be fairly attractive,” Seth said.

“You have high nominal yield, potential to generate returns in an environment where rates are pretty low globally, and portfolio diversification,” he added.

Seth pointed out that international investors have been under-invested in the Chinese domestic bond market, controlling only more than 2% of its total worth of $16 trillion. He added that foreign participation is about to rise because Chinese bonds are getting increasingly included in major global indexes.

Technical analysis: New multi-year low in yields

High demand for China state bonds has placed a strong downward pressure on the 10-year yields. Today’s low of 95.52 represents the lowest yield since April 2017.

China 10-year yield (TradingView)

The yields are now moving towards the 2017 lows at 93.80. A rebound in yields may push them towards 98.40. 

Summary

China’s first direct sale of the government securities in the U.S. has attracted huge demand, helping the Asian superpower to raise $6 billion after attracting around $30 billion in bids.

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