Last week, we missed an intriguing story that several clients have asked us to explore.
China issued $2 billion worth of USD-denominated bonds, which might not seem groundbreaking at first glance—it’s not uncommon for China to issue bonds in dollars. However, two aspects of this issuance stand out:

1. The Venue: These bonds weren’t issued in the typical financial hubs like New York or Shanghai but in Riyadh, Saudi Arabia—a first of its kind.
2. Astronomical Demand: The bonds were oversubscribed 20 times, with a bid-to-cover ratio far exceeding typical U.S. Treasury auctions, where demand usually runs 2-3 times the issuance amount.

Even more remarkable is the pricing. These bonds trade near par with U.S. Treasuries, meaning their yields are almost identical. This is noteworthy because U.S. Treasuries are rated AAA, while China’s USD-denominated sovereign bonds are rated A+, a lower credit grade. Typically, A+ issuers’ bonds trade at a premium of 10-20 basis points (bps) above U.S. Treasuries, but China managed to issue these bonds at just 1-2 bps above, effectively securing dollar funding at near-parity with the U.S.

Why Does This Matter?
While the $2 billion issuance is insignificant in the grand scheme of global finance, its implications are fascinating. If China can replicate this “glitch” repeatedly, it could begin to influence dollar liquidity flows, effectively acting as a foreign “Michael Saylor” of dollars. In other words, China could create a mechanism to exercise influence over the global dollar market while advancing its broader strategic goal of yuan internationalization.