China dives back into euro debt market amid likely ECB rate cut

CHINA is returning to the international debt market after a three-year hiatus, planning to sell euro-denominated bonds amid a likely interest rate cut by the European Central Bank (ECB).

The Ministry of Finance announced it will issue up to two billion euros (S$2.9 billion) of notes in Paris in the week of Sep 23, according to a statement from the authorities on Monday (Sep 9). The Asian nation last tapped the foreign currency debt market in November 2021, data compiled by Bloomberg showed.

The latest offering will help build China’s yield curve, provide global investors easier access to the nation’s sovereign debt and may spur corporates to follow suit.

European Union government bond sales have climbed about 8 per cent so far this year to Sep 5, amid bets that officials will lower borrowing costs on Thursday, according to Bloomberg’s calculations using official data.

Chinese authorities may be “trying to diversify the investor base of government bonds” and normalise international fundraising as Europe starts to cut rates, said Stephen Chiu, chief Asia FX and rates strategist at Bloomberg Intelligence. The funds raised will likely be used for overseas projects or repatriated back as capital inflows, he added.

The ministry said “specific issuance arrangements will be announced separately before the issuance”.

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A large order book would reflect the continued strong demand for Chinese offshore debt. In 2021, Beijing received orders for more than four times the four billion euros of bonds it offered, before consecutive rate hikes by major central banks pushed up borrowing costs and cooled the global debt market.

Monday’s announcement comes after Chinese President Xi Jinping met with his French counterpart Emmanuel Macron in May as part of a state visit to Europe. The two nations signed 18 bilateral cooperation agreements in areas including green development, aviation and people-to-people exchanges. BLOOMBERG