Chinese Bond Connect venture gets underway

Violet Tucker
July 4, 2017

At the launching ceremony for the bond connect between mainland China and Hong Kong on July 3rd, PBOC's Deputy Governor Pan Gongsheng said that "the bond link scheme will serve as a bridge to connect mainland markets with global markets".

The early signs bode well for building an active debt market, with more than 2 billion yuan ($295 million) of bonds purchased in the first 22 minutes of brisk trade.

China's $9trn (£6.9trn, €7.9trn) bond market is the third-largest in the world but only 2% of mainland bonds are foreign owned.

The "northbound" bond connect, which allows qualified overseas investors to buy bonds in the mainland inter-bank bond market, either with Chinese yuan or foreign currencies, will be operating on a trial basis, according to the joint statement by the People's Bank of China and Hong Kong Monetary Authority on Sunday.

"There are good reasons to think that foreign demand for Chinese bonds will remain tepid for the foreseeable future".

"Chinese stock markets account for 10% of global market cap, and Chinese bond markets rank 3rd in the world", said Mo.

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The move is the latest in China's efforts to attract worldwide 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.

The connection will increase the supply of yuan-denominated assets that can be held by global investors as Beijing steps up the internationalization of its currency. "Longer term, it would be crucial to consolidate the new bond link with other existing investment improve market efficiency".

"Bond Connect will clearly make it easier for investors to access the Chinese bond market, which in turn makes it easier for investors to hold renminbi", Andy Seaman, chief investment officer of London-based Stratton Street, said in a note.

BNP Paribas said it had received approval as a market maker and had also executed its first trade under the scheme. HSBC said it is one of the underwriters.

Standard Chartered Bank, which supported several of its clients in Hong Kong in investing through the program yesterday, hailed the connect as a "significant milestone" for China's opening up of its onshore capital markets.

The project represents China's latest attempt to expand overseas access to its markets, having already established a new trading link between Hong Kong and Shanghai in 2014, and a further link between Hong Kong and Shenzhen in late 2016.

Other reports by Guamnewswatch

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