China Issues First Negative Interest Rate Government Bonds

5-Year Maturity with -0.15% Interest Rate
Total 4 Billion Euros Including 10 and 15-Year Maturities

[Asia Economy Beijing=Special Correspondent Jo Young-shin] China has successfully issued government bonds with negative interest rates. This is the first time government bonds have been issued with negative interest rates. It means that bonds with a face value of 100 euros were sold for 110 euros, and only the face value of 100 euros needs to be repaid at maturity.

The Wall Street Journal (WSJ) reported on the 19th (local time) that the Chinese Ministry of Finance issued 5-year government bonds worth 750 million euros (992.4 billion KRW) at a negative interest rate of -0.15%.

On the same day, the Chinese Ministry of Finance also issued 10-year government bonds worth 2 billion euros and 15-year government bonds worth 1.25 billion euros. The interest rate for the 10-year bonds is 0.318%, and for the 15-year bonds, it is 0.665%.

The 4 billion euro issuance of Chinese government bonds attracted a total of 18 billion euros in bids, showing high popularity (bid-to-cover ratio of 4.5 times).

The Wall Street Journal (WSJ), citing Samuel Fisher, head of China bonds at Deutsche Bank, analyzed that after the COVID-19 pandemic, the Chinese economy has rapidly normalized, and key economic indicators such as China's economic growth rates in the second and third quarters have shown positive results, which attracted funds to Chinese government bonds.

It also reported that one reason funds flowed into Chinese government bonds is that the negative interest rate margin is not as large as that of other countries' government bonds.

The yield on Germany's 5-year government bonds is -0.749%. Since purchasing German 5-year government bonds requires paying more than the face value, funds flowed into Chinese government bonds, which are relatively less costly.

James Atti, investment manager at Aberdeen Standard Investments, evaluated, "China issuing government bonds with negative interest rates also signifies a reduction in dependence on the US dollar market."

A source in Beijing said, "In Europe, 5-year government bonds are mainly issued with negative interest rates," adding, "With the recovery of the Chinese economy after COVID-19, it is meaningful that Chinese government bonds have become bonds that are also treated with negative rates."

The Chinese economy is rapidly recovering, recording 3.2% growth in the second quarter and 4.9% in the third quarter.

Above all, the fourth-quarter growth rate is expected to be in the 5-6% range, and China is considered the only country to achieve positive growth after the COVID-19 pandemic.

In fact, the International Monetary Fund (IMF) predicted that China will grow 1.9% annually this year, making it the only country with positive growth.

Morgan Stanley also forecasted that after the Chinese economy normalizes this year, it will grow 9% next year, leading the global economic recovery.

The People's Daily reported on the success of the negative interest rate bond issuance, stating, "It reflects increased confidence of the international capital market in the Chinese economy," and added, "In line with the globalization trend of the financial industry, China will further activate cooperation with international investors."

This content was produced with the assistance of AI translation services.