Latest news with #CGBs


RTHK
17-07-2025
- Business
- RTHK
Bond Connect tweaks enrich investment spectrum: expert
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."


Fibre2Fashion
20-06-2025
- Business
- Fibre2Fashion
China shifts to short-term tools in monetary policy overhaul: Nomura
China is transitioning its monetary policy framework to resemble Western models, focusing on short-term policy rates and reducing reliance on medium-term lending tools. China is reshaping its monetary policy, shifting from the medium-term lending facility to short-term tools like the 7-day reverse repo rate. The PBoC is creating a narrower interest rate corridor and using DR001 as a key benchmark. However, policy transmission remains weak, and open market operations are still developing amid lingering challenges. The People's Bank of China (PBoC) has de-emphasised the one-year medium-term lending facility (MLF), instead elevating the seven-day open market operations (OMO) reverse repo rate as the primary policy rate, according to Nomura. To enhance clarity and improve rate transmission, the PBoC is establishing a narrower interest rate corridor with temporary overnight repo rates acting as the floor and reverse repo rates as the ceiling. The DR001 rate—overnight repo for depository institutions—has emerged as a key interbank benchmark. The shift comes amid growing limitations of the MLF, which has constrained bond market liquidity by tying up large volumes of Chinese government bonds (CGBs) at the central bank. In response, the PBoC resumed direct CGB trading and launched outright reverse repos to manage liquidity more efficiently. Despite this shift, challenges remain. The PBoC does not commit to unlimited lending at the corridor's ceiling. Transmission from policy and interbank rates to bank lending and deposit rates remains weak, with window guidance still critical. Open market operations are also in a formative stage, as shown by the suspension of CGB purchases shortly after resumption. Fibre2Fashion News Desk (HU)