Posted inFixed Income

Southbound bond connect off to a steady start

The long-delayed launch of the southbound channel saw $619m of volume on the first day of trading.
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China’s central bank said 150 transactions took place between 40 mainland institutional investors and 11 Hong Kong market participants on Friday.

Bank of China (Hong Kong), HSBC, Standard Chartered, China Citic Bank International and China Construction Bank were among the market makers which participated in the first day of trading.

BOCHK alone completed 55 transactions worth RMB1.29bn ($199.68m) with 27 mainland institutions. The other banks did not disclose the size of their trades.

“Through strengthening the cooperation between financial infrastructure services providers in the two regions, the southbound bond connect will provide a convenient channel for mainland investors to invest in Hong Kong and the global bond market,” said the People’s Bank of China (PBOC) in a statement.

“The PBOC will continue to work with the Hong Kong Monetary Authority (HKMA), to improve relevant institutional arrangements in southbound trading in a bid to promote the reform and opening up of the Chinese bond market and realise the market’s high-quality development.”

“While meeting the demand of the mainland market, it will also give new momentum to the development of Hong Kong’s bond market,” said chief executive of the HKMA, Eddie Yue at the launching ceremony.

“Southbound trading under bond connect further deepens mutual access between the Mainland and Hong Kong bond markets and enhances the linkage between financial infrastructure of the two places,” Yue added.

Bond connect was first launched in 2017, but only a northbound leg was available to allow more than 2,700 Hong Kong and overseas institutional investors to access Chinese fixed income markets via Hong Kong.

The expansion of the bond connect scheme was announced earlier in the month, to allow mainland investors to trade offshore debt through Hong Kong.

The HKMA has designated 13 firms as market makers for southbound trading under the scheme, while 41 mainland banks, participants in China’s qualified domestic institutional investor (QDII) and Renminbi QDII schemes, were appointed as primary dealers.

The southbound part of the scheme has an annual total quota of RMB500bn, while the daily outflow is capped at RMB20bn.

The cross-boundary wealth management connect (WMC) pilot scheme was also launched in September this year, allowing investors in the Greater Bay Area to invest in wealth management products distributed by banks in each other’s market.

Shenzhen to issue municipal bonds in Hong Kong

Separately, the Shenzhen Municipal People’s Government said last Friday that it will issue offshore renminbi municipal government bonds not exceeding RMB5bn in Hong Kong in October.

The notes will be listed on the Hong Kong stock exchange and have the tenors of two years, three years and five years. The three-year and five-year bonds are green bonds.

This will be the first time a mainland municipal government issues bonds outside the mainland.

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