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China borrows at negative interest rates for the first time

November 19, 2020. Summarized by summa-bot.

China is cashing in on fears that the West's faltering economic recovery will keep interest rates near record lows for a long time.

The Chinese government issued debt at a negative interest rate for the first time on Wednesday in a bond sale that attracted significant investor interest, according to Deutsche Bank (DB), one of the banks that helped arrange the transaction.

Faced with ever lower interest rates at home, European investors snapped up the bulk of the debt as they seek to gain exposure to the only major global economy expected to grow this year.

The Chinese sale, which attracted final orders of about €16 billion ($18. 9 billion) for the €4 billion ($4. 7 billion) worth of bonds on offer, included 5-year debt priced with a yield of minus 0. 152%.

European investors accounted for 85% of the 15-year debt and about two thirds of the shorter-dated bonds, according to Deutsche Bank.

"It shows investors are still underexposed to China and there definitely is a scarcity value perceived in these bonds," said Deutsche Bank's head of China onshore debt capital markets, Sam Fischer.

European investors seized the opportunity to invest in debt at yields higher than what's available in Europe, where the central bank has slashed interest rates to record lows and pumped over one trillion euros into financial markets to cushion the blow from the pandemic.

The debt sale also indicates that investors want more exposure to China's economy, which is recovering from the pandemic at a quicker pace than Europe and the United States, banking sources said.

The issuance demonstrates that international investors are "full of confidence in China's strong economic rebound and its future developments despite the lingering global Covid-19 pandemic," David Yim, head of capital markets for Greater China and North Asia at Standard Chartered Bank, said in a statement.

In a statement posted to its website, China's Ministry of Finance said that the bond sale reflects China's "determination and confidence" to open up to the outside world and further integrate with international capital markets.

This is China's second major international debt sale in as many months, after it raised $6 billion in October, including from US investors.

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