OREANDA-NEWS. May 21, 2014. China National Petroleum Corp. is marketing dollar-denominated notes and China Cinda Asset Management Co. plans its first bond sale in the U.S. currency, after borrowing costs dropped to the lowest in almost 11 months.

CNPC, the country’s largest oil producer, is offering three-year floating-rate and five-year fixed-rate debt and may complete the sale as early as today, a person familiar said. Yields on dollar notes sold by companies from the world’s second-largest economy fell to 5.88 percent on May 5, the least since June 19, JPMorgan Chase & Co. indexes show.

Chinese borrowers are looking to international markets as onshore lending conditions are constrained, said Viktor Hjort, Morgan Stanley’s head of Asia fixed-income research. The country’s broadest measure of new credit dropped 19 percent in March from a year earlier, central bank figures show, as the government tries to temper financial dangers.

“Money-market liquidity onshore is probably a little better than it was, it’s just that there’s not a whole lot of evidence that that’s translating into materially easier borrowing conditions for corporates,” Hjort said by phone today. “There are a lot of corporates and a lot of debt that needs to be refinanced.”

Borrowing Costs

Average borrowing costs for Chinese companies declined 18 basis points last month, the biggest monthly drop since October, JPMorgan indexes show. Yields climbed to 5.91 percent yesterday.

Corporates graded AAA onshore, such as CNPC, pay 5.93 percent for 10-year debt, Chinabond indexes show.

CNPC is marketing three-year notes at about 110 basis points more than the three-month London interbank offered rate and five-year debt at a spread of about 145 basis points more than Treasuries, a person familiar with the matter said, asking not to be identified because the terms aren’t set.

China Cinda, one of four state-owned managers of bad loans, plans to sell its five-year bonds at about 275 basis points more than U.S. government debt, another person said. It’s also marketing 10-year debentures at a spread of about 335 basis points. The offering is China Cinda’s debut in the dollar market, data compiled by Bloomberg show.

Jingrui, Transfield

Jingrui Holdings Ltd., a Shanghai-based developer, is marketing five-year bonds at about 13.625 percent that can be bought back after three years, another person said.

Transfield Services Ltd., an Australian operations and maintenance services company, is offering dollar notes at about 8.375 percent, according to a separate person.

The cost of insuring Asia corporate and sovereign bonds fell today. The Markit iTraxx Asia index of 40 investment-grade borrowers outside of Japan and Australia dropped 1 basis point to 125.5 basis points as of 8:31 a.m. in Hong Kong, Standard Chartered Plc prices show. The gauge is below its average for this year of 133.4 basis points, according to data provider CMA.

The Markit iTraxx Australia index added 1 basis point to 96 as of 10:27 a.m. in Sydney, according to National Australia Bank Ltd. The benchmark is near a four-year low of 94.6 basis points reached May 2, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Japan index rose 1.5 basis points to 87 as of 9:27 a.m. in Tokyo, Citigroup Inc. prices show. The gauge is set for its highest close since April 15, CMA prices show.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.