Tue, Jul 04, 2017 - Page 10 News List

Reaction muted on first day of China bond link

Bloomberg

The first day of China’s new bond link to the rest of the world started yesterday, with little in the way of a market reaction.

The bond connect program with Hong Kong will give offshore investors another way to access China’s US$10 trillion debt market. The system will initially only allow one-way flows to the world’s third-largest bond market.

“The inflows through the bond connect should be minor and the impact on yields should be negligible,” Jason Daw, head of emerging markets strategy at Societe General SA in Singapore, yesterday wrote in note. “Foreigners have been able to invest into Chinese bonds under various schemes in the past.”

Previous moves to opening the country’s interbank bond market to institutional investors have failed to boost foreign holdings of onshore debt.

Overseas institutions’ holdings of Chinese bonds dropped to 830 billion yuan (US$121 billion) as of the end of March, from 853 billion yuan three months earlier, People’s Bank of China data show. That is less than 1.5 percent of 66 trillion yuan of outstanding notes, according to Bloomberg calculations based on the central bank data.

Authorities in Beijing view the connect as another path to internationalizing the country’s currency and further integrating its markets into the global financial system.

The Hong Kong-based asset management arm of Bank of China Ltd said it was the first institution to complete the two bond trades as well as the first onshore yuan spot trade under the bond connect program, according to a statement.

HSBC Holdings Plc, Standard Chartered Plc and Citigroup Inc were among banks announcing they had completed their first deals as market makers in the new system.

Hong Kong Exchanges and Clearing Ltd chief executive officer Charles Li (李小加) said that the company would consider opening a channel into the territory if investors showed an interest.

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