'Northbound' mainland-Hong Kong bond connect opens July 3

Posted July 04, 2017

That link followed the launch of the Shanghai-Hong Kong Stock Connect in November 2014, which allowed global investors to trade in hundreds of Shanghai-listed A-shares as well as Hong Kong stocks.

The subscription ratio, the amount of purchase requests to the amount of bonds available, stood at 2.52 for bonds issued only to overseas investors, indicating enthusiasm on the first day of trading.

The new programme is created to give global investors "northbound" access to mainland China's RMB 69 trillion ($10 trillion) interbank bond market.

The launch coincided with the 20th anniversary of Hong Kong's handover from Britain to China on Saturday, when Chinese President Xi Jinping presided over the inauguration of the city's new leader, Carrie Lam.

In line with broader foreign access rules, overseas investors including pension funds, central banks and sovereign wealth funds will be eligible to trade sovereign and local government bonds, policy bank bonds and corporate debt on the Bond Connect.

China's inter-bank bond market has been promoting opening-up in recent years.

Ivan Chung, associate managing director at Moody's, said the program would boost yuan internationalization as it enlarges the pool of investable yuan-denominated assets for foreign investors.

HSBC Holdings Plc, Standard Chartered Plc and Citigroup Inc were among banks announcing they had completed their first deals as market makers in the new system.

The move is the latest in China's efforts to attract global investors to its vast government and corporate debt markets, the world's third-largest, with its outstanding bonds hitting over US$9 trillion in 2016. "Longer term, it would be crucial to consolidate the new bond link with other existing investment schemes.to improve market efficiency". For a start, there is little evidence that market access has been a binding constraint on foreign investment.

The Bond Connect programme is Beijing's latest attempt to open up its financial markets and attract foreign capital.

"Over the a year ago China has been normalizing policy and we've seen the currency stabilize and bond yields start to become more attractive".

"For foreign investors wishing to access the Chinese market, the Bond Connect would be a more attractive option than the current practice of accessing the interbank bond market, in terms of limits in quota, convenience in trading and criteria in clearing", said Zhang Dong, vice president of Ping An Securities, noting that he sees "an huge growth opportunity".

HKEx chief executive Charles Li said demand for a southbound channel was limited, meaning the bond connect scheme will only allow investors to initially trade northwards.

Dubbed "Bond Connect", the trading platform will operate alongside two existing cross-border stock connect programs, the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect.