Shuli Ren is a Bloomberg Gadfly columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.

(Updated )

The morning after is always when reality hits.

Reading the news headlines about China's recently minted sovereign bond, one could be forgiven for thinking President Xi Jinping's moment in the capital markets has arrived. The government's $1 billion of 10-year notes were priced just 25 basis points over Treasuries, with the spread narrowing to less than 10 basis points Friday morning. That puts China in the same category as AAA-rated Germany.

Almost AAA
China's 10-year sovereign bond traded as low as 7 basis points over Treasuries on its first day of trading
Source: Bloomberg
* Refers to KfW's 2% 2025 notes. Israel is the sovereign's 2.875% 2026 bonds and Japan is JBIC's 2.875% 2027 securities.

Beijing has said it doesn't need any more dollars, and its first U.S. currency offering since 2004 was more to set a benchmark for state enterprises borrowing overseas.

The market isn't buying it.

Compare China to Indonesia, a heavy and consistent dollar borrower. The 4.125 percent 2027 debentures of PT Perusahaam Listrik Negara, a state-owned monopoly electricity distributor, are trading about 55 basis points wide of Indonesia's 10-year sovereign bond. Since China is considered more creditworthy than its Southeast Asian neighbor, you'd imagine its quasi-sovereign spread would be narrower.

That's not the case. The spread over Treasuries of State Grid Corp. of China's 2027 3.5 percent dollar bonds narrowed just 1.5 basis points on Friday to trade 69 basis points wide of the sovereign while China Petroleum and Chemical Corp.'s 3.25 percent 10-year notes sold in September tightened by a similar amount to a 79-basis-point spread.

Granted, both were bid up as the sovereign sale approached, with spreads of the latter falling 20 basis points this month, but nonetheless, demand for China's government bond hasn't helped boost prices as much as one might expect.

Fat Lot of Good
Robust demand for China's sovereign dollar bond hasn't helped tighten SOE issue spreads
Source: Bloomberg

The issue, as I argued earlier this month, is scale: At $2 billion, China's sovereign sale is tiny.

Indonesia's government, by contrast, has $38.75 billion of dollar debt outstanding, with due dates ranging from one to 30 years. That makes a nice yield curve against which the nation's corporates can benchmark.

Go the Greenback
Chinese companies are poised to issue a record amount of dollar bonds this year
Source: Bloomberg

If anything, China's sovereign sale will mean more state-owned firms must test the waters for themselves. China Huarong Asset Management Co. plans to meet with investors next week for a mixed Singapore and U.S. dollar offering, according to a person familiar with the matter. The bad-debt manager has already raised $5.6 billion from international markets this year.

For all the fanfare surrounding China's first sovereign bond sale in more than a decade, it seems the real work of building a benchmark will fall in true communist style to the people.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Adds footnote to first chart to clarify bonds referenced.)

  1. As benchmarked against KfW's 2025 notes, the issue cited by banks marketing China's sovereign sale.

  2. China sold $1 billion of 10-year 2.625 percent notes and $1 billion of 2.125 percent five-year securities.

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Shuli Ren in Hong Kong at

To contact the editor responsible for this story:
Katrina Nicholas at