China Sells Record Amount of Bonds to Fund Its Government Investment Arms

From Staff Reports

China sold $79 billion in bonds — the world’s biggest bond sale — to help fund a state-run investment company that will help manage its $1.33 trillion in foreign-exchange reserves, also the world’s biggest.

China’s Ministry of Finance said in a statement yesterday (Wednesday) that it sold the 10-year bonds carrying 4.3% yields to the state central bank. Future sales may include bonds with terms of 15 or more years.

As of June, about 70% of China’s forex reserves are believed to be held in U.S. dollar-dominated paper, mostly government bonds.

The statement said the bond sale will “help reduce the size of foreign-exchange reserves and improve returns,” and noted that the longer maturities will “diversify bond types and the duration structure.”

The state-run company, China Investment Co. Ltd., will diversify – and maximize returns on – a portion of China’s foreign-exchange reserves. It has been in its formative stages for months, but made a significant purchase when it anted $3 billion for a 10% stake in New York’s Blackstone Group LP (NYSE: BX), in May. Since Blackstone’s June 22 IPO, the private equity firm’s stock price has dropped 34.5%, as worldwide credit problems continue to grow.