BOFIT Viikkokatsaus / BOFIT Weekly 2017/44

China's finance ministry last week issued in Hong Kong a total of 2 billion dollars in five- and ten-year notes. Demand for the bonds exceeded supply by more than ten times. The five-year bond carried a coupon of 2.125 % and the ten-year 2.625 % (just 15 and 25 basis points, respectively, above the rates on the corresponding US treasuries).

The small issuance was largely intended to help set a reference rate for pricing increasingly popular corporate dollar bond issues. Bloomberg reports that Chinese firms this year have issued dollar-denominated notes worth approximately of 150 billion dollars, a 78 % increase from the same period last year.

Just over 1 % (about 18 billion dollars) of China's government debt was foreign debt at the end of last year. Of this, 85 % was denominated in yuan. The last time the Chinese government issued dollar notes was in 2004.

The rate for both the five-year and ten-year mainland China bonds was 3.9 % at the start of November, or 30 basis points higher than a month earlier and over 100 basis points higher than a year ago.