Brisk trade marks launch of China, HK bond scheme

More than two billion yuan of bonds purchased in first 22 minutes

HONG KONG: China and Hong Kong launched a long-awaited “Bond Connect” scheme that links China’s US$9 trillion bond market with overseas investors, the latest step in Beijing’s efforts to liberalise and strengthen the country’s capital markets.

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

HSBC Holdings and an asset management unit of Bank of China were the among the first to complete trades using the scheme. The launch of the connection was timed to coincide with the 20th anniversary of Hong Kong’s handover to Chinese rule and trading will initially commence “northbound”, meaning foreign investors will be able to buy and sell Chinese bonds.

No launch date has been set for the southbound channel.

“We continue to hold the view that there could be more than US$1 trillion of additional global fixed income investments to be allocated to China domestic bonds over the coming decade,” a note from Goldman Sachs said yesterday.

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.

The connection will increase the supply of yuan-denominated assets

We continue to hold the view that there could be more than US$1 trillion of additional global fixed income investments to be allocated to China domestic bonds. Goldman Sachs

that can be held by global investors as Beijing steps up the internationalisation of its currency.

“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 yuan,” Andy Seaman, chief investment officer of London-based Stratton Street, said in a note.

A giant screen at the launch ceremony showed 2.15 billion yuan worth of bonds were purchased in the first 22 minutes of trade. Chinese regulators formally approved the bond connect scheme in May.

International investors have been allowed direct access to the China interbank bond market since last year and some market participants have questioned the need for an additional trading scheme.