TURNOVER under the milestone bond connect between China's mainland and Hong Kong hit 7 billion yuan (US$1.1 billion) on its opening day yesterday as overseas investors took advantage of the access to the US$9 trillion domestic debt market.
Global individual investors applauded the launch of Bond Connect, which heralds the next major phase in China's financial market liberalization.
Chinese bonds can now be bought by banks, insurers and fund managers via The Bond Connect scheme in Hong Kong, opening up the China's US$9trn bond market to widespread foreign investment for the first time.
Chinese regulators have also shown greater flexibility in adopting global standards, with foreign investors being allowed to settle bond transactions on a T+2 basis, on top of the original T+0 and T+1 arrangement.
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.
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Overseas investors have been reluctant to enter the market amid fears over the stability of the Chinese yuan, and over potential delays to Beijing's reforms of the capital markets.
Deutsche Bank said it had executed its first two transactions leveraging the initiative, as did HSBC and BNP Paribas as market makers.
China has been keen to increase foreign participation in its bond market, the world's' third-largest, where overseas holdings were less than 2 percent. The yield on China's benchmark 10-year government bond dipped 0.04 percentage point to 3.53%, while. "Longer term, it would be crucial to consolidate the new bond link with other existing investment schemes.to improve market efficiency". "At the same time, there will be more significant growth in northbound flows as we expect more global bond indices will include or increase allocations in Chinese onshore bonds one year after the implementation of Bond Connect", Chung said.
They can invest in bonds that are tradable on the mainland inter-bank bond market, including treasury bonds, local-government bonds, policy bank bonds, commercial bank bonds, corporate bonds and asset-backed securities, the PBOC said.
Officials are still exploring "southbound" access for mainland investors, and said it depends on demand. Those links give foreigners some access to China-listed shares, while also allowing Chinese firms to buy Hong Kong- traded stocks.