[Asia Economy Reporter Park Byung-hee] Despite the recent sharp economic slowdown, a large amount of investment flowed into dollar bonds issued by the Chinese government.
The Wall Street Journal (WSJ) reported on the 19th (local time) that the Chinese government raised $4 billion by issuing dollar bonds at low interest rates. The Chinese government had previously announced its plan to issue dollar bonds on the 30th of last month.
The Chinese government has issued dollar bonds for five consecutive years since 2017. Before that, it had not issued dollar bonds for 13 years. The dollar bonds issued last year were also issued in October, the same month as this year, but the amount raised was $6 billion, which was larger than this year.
This year, the Chinese government issued four types of dollar bonds with maturities of 3, 5, 10, and 30 years, the same as last year. The winning bid yield on the 3-year maturity bond was only 0.06 percentage points higher than the 3-year U.S. Treasury bond yield. The 10-year maturity bond was 0.23 percentage points higher, and the 30-year maturity bond yield was 0.53 percentage points higher.
WSJ assessed that the funding rates were formed at a low level, showing that bond investors still trust the Chinese economy.
China's third-quarter economic growth rate, announced by the National Bureau of Statistics on the 18th, was only 4.9%. It fell short of the market expectation of over 5% and showed a sharp decline from 7.9% in the second quarter. This is interpreted as the economic growth momentum being weakened due to the liquidity crisis of Evergrande Group causing a slowdown in the real estate market, as well as power shortages caused by a sharp rise in coal prices.
Bond investors stated that despite these various adverse factors, they are not worried about China's creditworthiness.
Nick Eisinger, Head of Emerging Market Bond Investment Strategy at BlackRock, said, "The economic slowdown in China due to real estate troubles does not pose a problem for the Chinese government bond market," adding, "The credit risk related to Chinese government bonds is not significant."
Sanjay Guglani, Chief Investment Officer (CIO) of Silverdale Fund in Singapore, also predicted that the Chinese economy will perform better than the U.S. economy and that the interest rate gap between U.S. Treasury bonds and Chinese dollar bonds will narrow in the long term.
Moody's assigns an A1 rating to China's dollar bonds, while S&P and Fitch assign an A+ rating. All three credit rating agencies give the fifth-highest rating among the ten investment-grade ratings.
Moody's expects that China will be able to reduce credit risk caused by a large amount of public sector debt and that recent real estate market concerns will not cause systemic risk. However, it added that a prolonged real estate downturn would reduce local government fiscal revenues and be a negative factor for small financial institutions.
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