For the first time in history, China's "lending rate" has caught up with that of the United States.

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The U.S. dollar-denominated sovereign bonds issued by China’s Ministry of Finance in Hong Kong have reached a historic milestone, with the three-year bonds priced at par with U.S. Treasury yields, marking the first time China’s dollar borrowing costs have matched those of the United States.

On Thursday, China’s Ministry of Finance issued $4 billion in sovereign bonds, with the three-year bonds carrying a coupon rate of 3.625%, equivalent to U.S. Treasuries of the same maturity, and the five-year bonds priced only 0.02 percentage points above U.S. Treasuries. Previously, although China’s dollar bonds have traded at a negative spread in the secondary market, they have always maintained a premium at issuance in the primary market.

The offering attracted strong investor demand, with the five-year bonds oversubscribed by 30 times, and more than half of the orders coming from central banks, sovereign wealth funds, and insurance companies.

David Yim, Head of Capital Markets for Greater China and North Asia at Standard Chartered, said, “Market liquidity is abundant, and geopolitical tensions have eased.” This environment has provided a window for many sovereign issuers, including China, to conduct international financing at historically low spreads.

Sovereign Bond Financing Costs Hit Historic Lows

A syndicate comprising Chinese banks, U.S. banks, and other foreign banks underwrote Thursday’s transaction. According to the bond’s term sheet, the funds raised will be used for “general government purposes,” and the transaction will be settled next Thursday.

The order book shows strong interest from institutional investors for the bonds. Central banks, sovereign wealth funds, and insurance companies—long-term allocation investors—accounted for more than half of the five-year bond subscriptions, reflecting market recognition of China’s sovereign credit.

China last issued U.S. dollar sovereign bonds in 2024, when it sold $2 billion worth in Saudi Arabia. This $4 billion issuance in Hong Kong has doubled the size compared with the prior issue, showing that, against the backdrop of improved financing costs, China has increased its U.S. dollar bond issuance.

Currently, several countries are seizing the opportunity to issue dollar bonds as financing costs reach historic lows. In September this year, Abu Dhabi issued $2 billion in 10-year bonds with a spread of just 0.18 percentage points over U.S. Treasuries. In October, Korea’s Ministry of Finance issued $1 billion in five-year bonds with a spread of 0.17 percentage points.

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