Chinese bonds find fast favour in Hong Kong short-term borrowing as new rules take effect
Banks, securities firms and hedge funds complete their first trades under the offshore Bond Connect repo mechanism
The HKMA reported that on the first trading day, at least 25 financial institutions, including 11 market makers, conducted more than 60 transactions totalling more than 3 billion yuan (US$419 million) in various settlement currencies.
CITIC Securities International Capital Management (known as Citic CLSA), British hedge fund Capula Investment Management and GF Global Capital completed cross-currency repo transactions in US dollars, euros and Hong Kong dollars as well as offshore yuan repo trades, using onshore bonds held through the northbound Bond Connect as collateral, according to HSBC, one of the programme’s 11 market makers in Hong Kong.
CLSA and GF Global carried out similar trades with Standard Chartered, which also backed Eastfort Asset Management and Huatai Financial in completing their first cross-currency repos using onshore bonds as collateral. Standard Chartered said these deals supported the HKMA’s efforts to “improve the market-based mechanism for offshore [yuan] liquidity management and foster investor participation”.
The transactions underscored investors’ growing confidence in China’s capital market liberalisation and reinforced Hong Kong’s position as the leading offshore yuan hub, as Chinese bonds gained appeal for their diversification benefits and relative stability, according to analysts.
“As the People’s Bank of China [PBOC] and the HKMA continue to enhance the market mechanism of Bond Connect, we have seen a growing number of client inquiries,” said John Thang, Standard Chartered’s head of markets and strategic client management and solutions for Hong Kong, Greater China and North Asia.