China dollar bonds zoom higher after $118 billion of demand

China’s $4 billion return to the dollar bond market generated enough demand to cover its deal almost 30 times over, providing instant gains to investors after the notes rallied in the secondary market.

The country’s finance ministry sold $2 billion of three-year dollar notes in line with Treasuries, and $2 billion of five-year bonds priced to yield just two basis points over the US, according to a statement.

Those razor-thin margins were just a taste of things to come, as a surge of demand in the secondary market caused the two notes to tighten by around 40 basis points, according to a trader.

“It was so popular,” said Serena Zhou, senior China economist at Mizuho Securities, adding that some investors complained they weren’t allocated enough bonds. “Although it is priced on par, it will still be free money.”

The two tranches generated $118.1 billion of demand from more than 1,000 accounts, although some investors may have placed orders for both bonds. The demand included over $29 billion of interest from the joint lead managers, showing that banks working on the deal were keen to add the bonds to their own books.

The negligible spreads over Treasuries on the new bonds were an improvement even over China’s tight prints last year, when its three- and five-year notes were priced to yield just one and three basis points over similar-maturity Treasuries.

Those notes have since tightened in the secondary market, helping drive demand for the new deal, said Xiaojia Zhi, an analyst at Credit Agricole CIB.

Central banks, sovereign wealth funds and insurers were allocated around 43% of the bonds, real money investors and hedge funds got 32% and banks were allocated 23%, with the remainder going to other investors.

More than half of the bonds were placed with investors in Asia, while European accounts got a quarter. Investors in the Middle East and North Africa were allocated 16%.

The sale comes amid a steady rebound in dollar-note sales by Chinese firms, after the country’s unprecedented property crisis and the Federal Reserve’s interest-rate hikes triggered an issuance slump. There’s been about $90 billion of publicly announced sales in 2025, heading toward a three-year high, according to data compiled by Bloomberg.

Authorities aim to use the latest issuance to further develop a deeper yield curve that can serve as a pricing benchmark for Chinese companies.

The three-year bond is priced to yield 3.646%, while the five-year note yields 3.787%.

S&P Global Ratings assigned an A+ long-term foreign-currency issue rating to China’s latest dollar-bond offering.

Read Also: Qatar Airways to sell its holdings in Hong Kong's Cathay Pacific for $896 million