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Bond Connect vital for Chinese bond integration into global indices

Bond Connect vital for Chinese bond integration into global indices

(11 October 2019 – Hong Kong) With the number of foreign institutional investors using the cross-border bond trading channel more than doubling in 2019, the Hong Kong Bond Connect scheme could play a crucial role in integrating China’s onshore bonds into global indices.

Launched in July 2017, Bond Connect enables offshore investors to buy and sell in China’s interbank bond market and hold these securities in their Hong Kong custodians’ accounts. Liquidity in the China onshore bond market has jumped in 2019 mainly as a result of the Hong Kong Bond Connect scheme providing investors with easier market access. A record US$47.6 billion of Chinese onshore bonds were traded last month. Through Bond Connect, foreign investors are free to make currency transactions with multiple banks as opposed to relying on one onshore custodian bank when accessing the interbank bond market directly.

“We have joined the Bond Connect this year and we have diverted some of our Chinese bond trading volume onto it, which gives us more flexibility in conducting foreign exchange hedging transactions” stated ANZ Head of Markets, North Asia, Dennis Wong.

“As the world’s second largest bond market after the US, the Chinese bond market has grown to a size that is too big to ignore. The attractive yields offered by Chinese bonds, whereby 10-year Chinese government bond yields are above 3 percent on average over the past nine months, made them stand out and contrasted sharply with the negative yields offered by some of the European government bonds” Mr Wong added.

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