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Baidu Markets Dollar Notes as China Spreads Fall to 5-Month Low

Baidu Inc. is marketing dollar-denominated notes along with China Overseas Land & Investment Ltd. as the extra yield that investors seek for the nation’s companies fell to a five-month low.

Baidu, the owner of China’s biggest Internet search engine, is selling five-year debt at about 150 basis points more than Treasuries, according to a person familiar with the matter, who asked not to be identified because the matter is private. The yield premium on Chinese dollar bonds dropped to 323 basis points this week after a May 30 government statement announcing “targeted” reserve-requirement-ratio cuts for certain banks and small companies, according to JPMorgan Chase & Co. indexes.

Spreads for corporate borrowers in the world’s largest economy had already narrowed 21 basis points last week, the most since the five days ended July 12, as the government takes steps to safeguard growth. Authorities are contending with a property slump that threatens expansion while they try to sustain efforts to limit shadow banking, pollution and corruption.

“The performance over the last week has been driven by expectations of policy relaxations like the reserve requirements for banks,” said Raymond Chia, the head of credit research in Singapore at Schroder Investment Management Ltd. “Spreads also ground in tighter partly due to a lack of dollar bond issuance.”

Bond sales from Chinese companies plummeted 73 percent in May from the previous month to $5.55 billion, according to data compiled by Bloomberg.

Chinese Borrowers

Spreads on Baidu’s $1 billion of 2018 debentures, its biggest dollar bond outstanding, tightened by 21.6 basis points this year to 127.8 more than Treasuries yesterday, according to Bloomberg prices.

China Overseas Land is offering more of its existing 2019 notes at about 250 basis points more than Treasuries and its 2024 bonds at a premium of around 310 basis points, another person said.

Other Chinese borrowers include China Metallurgical Group Corp., which is considering a credit-enhanced dollar bond with a standby letter of credit from the London branch of Bank of China Ltd, according to another person.

The Markit iTraxx Japan index of credit-default swaps, which measures the cost of insuring company debt against non-payment, declined half a basis point to 74 as of 9:49 a.m. in Tokyo, Mizuho Securities Co. prices show. The gauge is set to fall for a fourth straight day, according to data provider CMA.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 106.5 basis points as of 8:46 a.m. in Singapore, Westpac Banking Corp. prices show. The Markit iTraxx Australia index was also little changed at 85 basis points as of 10:40 a.m. in Sydney, Australia & New Zealand Banking Group prices show. The measure is at its lowest since April 2010, CMA data show.

The indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

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