China-Hong Kong bond link gets off to quiet start

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Christy Curtis | 04 July, 2017, 00:25

China has opened up its onshore bond market to foreign investors with the launch of the bond connect scheme today. "Northbound" trade, which allows foreign investors to buy bonds issued on the Chinese mainland, started Monday, without caps on investment volume.

Southbound trading would be explored at a later stage, the new Bond Connect website said.

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. We will increasingly see Central Banks buying Chinese government bonds.

A giant screen at the launch ceremony showed 2.15 billion yuan worth of bonds were purchased in the first 22 minutes of trade.

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.

As reported by the South China Morning Post, Yunho Song, Senior Advisor to the president of Ping An Securities, said: "In comparison with previous rules on foreign investors" investment in the Chinese bond market, Bond Connect has significantly abridged the procedures for foreign investors who cannot only "click' and enter the Chinese bond market but also purchase directly in foreign currencies".

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Worldwide individual investors applauded the launch of Bond Connect, which heralds the next major phase in China's financial market liberalization. This is below the worldwide norm of about 10 percent, BNP Paribas said.

Deutsche Bank said it had executed its first two transactions leveraging the initiative, as did HSBC and BNP Paribas as market makers.

Bond Connect does away with onerous requirements for outsiders and eases worries about taking profits out of China, but downsides include worries about the depreciating yuan and reliability of China's domestic credit rating agencies.

"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". China Development Bank said it planned to issue up to 20 billion yuan ($2.95 billion) of one-year, three-year and 10-year fixed-rate bonds for tender on Monday.

Standard Chartered was also mandated as Special Underwriter in China and a Joint Global Coordinator in Hong Kong for Agricultural Development Bank of China's 16 billion yuan bond issuance, the first primary offer out of the Bond Connect scheme.

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China-Hong Kong bond link gets off to quiet start

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