Bond Connect tweaks enrich investment spectrum: expert

RTHK

17-07-2025

Bond Connect tweaks enrich investment spectrum: expert
Currently, the Southbound Bond Connect has a daily investment quota of 20 billion yuan, and an annual limit of 500 billion yuan. File photo: RTHK
A fixed-asset investment veteran said that the latest tweaks on the Bond Connect scheme enrich the investment spectrum for onshore investors, but called for the link's annual quota to be further increased to facilitate growing transaction volume.
The comments came after a senior official from the People's Bank of China (PBoC) announced last week that the southbound leg of the bond trading link will be opened to non-banking players such as securities and wealth management firms to invest in offshore bonds.
The move marked a significant step by Beijing to relax capital-flow restrictions, as previously only banks and qualified institutional investors were eligible.
It also offered an opportunity for onshore investors looking for higher yields, according to Shen Li, Head of Foreign Exchange Sales, Asia Pacific at State Street Markets.
"It all comes down to the fact that you can further diversify out of the onshore investment opportunities, as at the moment the bond yield onshore is still on the low end as officials want to keep the loose monetary policy to stipulate the local economy," he told RTHK.
"Investors…generally invest in the China Government Bonds (CGBs) and Policy Bank debts, and the Non-convertible Debentures (NCDs). I think by opening up the southbound channel, it just opens up the spectrum for investors to choose from."
While the policy bank bonds, similar to the CGBs, are issued by state-backed financial institutions to promote specific public policy objectives, NCDs are corporate bonds with fixed interest and tenures.
Li added that the Bond Connect expansion, along with other planned relaxations including that on the Southbound repurchase agreement (repo), a short-term borrowing and lending transaction involving the sale of securities with a promise to repurchase them at a later date, as well as that on the Swap Connect programme, would also enrich the two-way gates for onshore and offshore investors to choose from.
However, Li felt the southbound link's limits of 20 billion yuan each day, or 500 billion yuan annually should be adjusted accordingly, after they were unchanged since the scheme's inception in 2021.
"The quota [of the scheme] matters because the [current] 500 billion yuan a year does provide a big cap on the investment opportunity," he explained.
"At this moment, I don't think there's any official number being rolled out yet. However, such [an] expansion without an increase on the quota probably doesn't make sense."