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According to nonpartisan think-tank Pew Research Center, negative views of the Chinese government have risen sharply in many developed nations in 2020.

From its handling of the coronavirus outbreak to oppressive security policies in Hong Kong, China has faced criticism on many fronts.

But the souring sentiment doesn't appear to have dampened Western enthusiasm for Chinese sovereign bonds. Yesterday, China raised $6 billion in dollar-denominated debt, specifically targeting U.S. investors for the first time in decades.

Deal Details
China's Ministry of Finance structured the bond sale under so-called 144A terms, which allows debt to be sold to U.S. institutional investors. According to the WSJ, this structure hasn't been used by China since 1996.

The bonds were structured with four different maturities (three, five, 10 and 30 years). The three-year bonds offered a 0.25% higher yield than the corresponding U.S. Treasuries, while the longest-dated bonds paid an extra 0.8%.

And Americans scooped them up:

  • U.S. buyers purchased 47% of the $500 million, 30-year debt.
  • Overall, 15% of the total amount raised went to American investors.

The deal was handled by a gaggle of 13 banks including Bank of America, Citigroup, Goldman Sachs Group and JPMorgan Chase.

The Rationale
Quality yield is hard to find these days. Central banks around the world have bought huge quantities of government debt during the pandemic, pushing interest rates to historic lows.

That reality, in turn, has boosted the appeal of higher-yielding debt sold by some emerging countries.

Safety in Numbers: China has solid investment-grade credit ratings: an A+ grade from S&P Global and an equivalent A1 from Moody’s.

The Takeaway: Finally, China's economy appears to be shaking off the challenges of the pandemic. The International Monetary Fund said earlier this month that China will be the only major economy to grow in 2020, expanding by nearly 2%. 


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