On Wednesday, the Chinese government issued debt at a negative interest rate in a bond sale, according to Deutsche Bank (DB), who helped facilitate the transaction.
On their website, China’s Ministry of Finance said this transaction reflects China’s “determination and confidence” to further integrate with international capital markets.
The majority of this debt was bought by European investors who saw an opportunity to invest in debt at yields which are higher than yields in Europe currently. On Thursday, yields of five-year German government bonds were -0.749%. The European Central Bank has cut down interest rates to record low levels and have pumped more than €1 trillion into financial markets because of the coronavirus pandemic.
Other investors who bought the bonds include central banks, sovereign wealth funds, and global asset managers from Asia and the United States.
The final orders for this sale were of $18.9 billion, for $4.7 billion worth of bonds on offer, which included a five-year debt with a yield of -0.152%. They also sold five and ten-year bonds with yields under 1%.
Sam Fisher, Deutsche Bank’s head of China onshore debt capital markets, said, “[The transaction] shows investors are still underexposed to China and there definitely is a scarcity value perceived in these bonds,” which reflects investors interest in investing in China’s economy and their confidence about it.
China’s economy has bounced back at a quicker pace than the United States and Europe’s economies, with industrial production and retail sales increasingly greatly in October. Restrictions in Europe and the United States have slowed down their economies and there is a possibility that these economies will go back into recession in the fourth quarter.
In the third quarter from a year before, China’s economy grew 4.9%. In October, the International Monetary Fund said they expect China to be the only major economy to grow this year, growing 1.9%.
