UPDATE 2-China lines up banks for record euro-denominated government bond sale

(Adds details, comments, chart)

LONDON, Nov 16 (Reuters) – China has hired a fleet of banks for what is likely to be its biggest ever euro-denominated international bond sale, according to a note to investors seen by Reuters.

The bonds will follow a similar move a year ago, which was the first time in 15 years China had issued euro-denominated government debt.

One source close to the deal added there were likely to be five tranches of bonds adding up to a “minimum” of between 5 and 8 billion euros ($5.9-$9.4 billion) which would top last year’s 4 billion euro deal.

The new sale comes amid a sudden rush of demand for emerging market debt in the wake of Joe Biden’s U.S. presidential election win and last week’s breakthrough with a coronavirus vaccine.

Bankers point out that the ‘real’ yield premium China’s bonds offer once inflation is factored in compared to U.S. and European government bonds is now at long-term highs following this year’s emergency measures from the Federal Reserve and European Central Bank.

Their appeal has also been boosted by winning inclusion into one of the world’s prominent debt indexes for first time this year, driving investors that track the benchmark to buy up the bonds.

The note added that “subject to market conditions” Bank of China, Bank of Communications, China International Capital Corporation, BofA Securities, Crédit Agricole, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Societe Generale and Standard Chartered Bank would all work on the deal.

“There has been quite a few deals recently from EM countries,” the source close to the deal added. “I think the search for yield is probably one of the strong factors here. China has recovered well from the Covid crisis, so it could be even better for them”.

($1 = 0.8445 euros)

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