For the fifth year in a row, China is marketing a dollar bond sale in Hong Kong, despite credit market tensions and growing concerns about the financial health of the country's property developers.

The Ministry of Finance said on September 30 that it would sell a total of $4 billion in dollar bonds in a four-tranche deal, down from last year's $6 billion. Initial pricing guidance, according to a source familiar with the subject, is as follows, with premiums over Treasuries less than the initial indications on last year's deal:

At a time when China-specific risks have risen, the debt issuance will be a true test for investor sentiment. The country's credit markets have been rocked by a regulatory crackdown on the country's real estate sector and a debt crisis at major developer China Evergrande Group.

Yields on dollar junk bonds recently hit a decade high of 20%, as investors priced in increased default risk for some Chinese borrowers. Nonetheless, demand for China's sovereign debt offerings, which have investment-grade ratings, has historically been strong. In addition, a flood of cash from central banks since the pandemic has reduced financing costs for many borrowers worldwide.

After a 13-year absence, China returned to the dollar bond market in 2017. It has subsequently become an annual visitor and is in high demand. It has sold a total of $17 billion in debt through 2020, as well as 8 billion euros ($9.3 billion) of bonds in that currency since 2019.

This year's sale extends its reach to institutional investors in the US. With China's first issuance of so-called 144A notes last year, the Ministry of Finance expanded the pool of potential buyers.