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Bloomberg
21-07-2025
- Business
- Bloomberg
Evolving opportunities in China's fixed income market
China's bond market: Global opportunity, real reform Held in Singapore in June 2025, our Invest in Asia Series: Spotlight on China event focused on the theme of the continued opening and maturation of China's bond market, now the world's second largest. Reforms have delivered deeper interest rate liberalization, more robust price discovery, and expanded access for global investors through initiatives like Bond Connect and Swap Connect. The market now offers international participants a level of transparency, efficiency, and liquidity that stands up well in comparison with both developed and emerging market peers. Speakers highlighted the following Stability and low correlation: Chinese government bonds have shown robust stability, with low correlation to both U.S. Treasuries and other major bond markets making them attractive for diversification in global portfolios. Liquidity and access: Trading volumes and turnover have grown rapidly since the launch of Bond Connect in 2017. Liquidity in government and policy bank bonds is strong, and mechanisms for repatriation and hedging (such as Swap Connect) are in place, though some instruments remain restricted for foreign investors. Product choices: For institutional investors, the market offers choices ranging from government bonds (CGBs) to policy bank bonds and local government debt. Most recent foreign inflows have targeted short-duration products such as negotiable certificates of deposit (NCDs), but there is steady growth in interest for longer-term bonds and more complex fixed income strategies. Ongoing reforms: There is ongoing regulatory engagement to address remaining friction, particularly around access schemes, taxation, repo market connectivity, and the hoped-for opening of CGB futures to a broader group of foreign investors. Market outlook and practical takeaways Economic outlook While China's near-term growth remains solid by global standards, there are realistic headwinds. Export growth has been front-loaded and is expected to moderate; domestic consumption still has significant untapped potential, but policy stimulus will be required to unlock it. Property sector weakness and local government debt are not resolved. That said, China's global contribution to GDP growth is set to remain substantial, with innovation, technology, and services expected to play an expanding role. Bond market strategy Diversification and risk management: China's bond market offers a clear diversification benefit due to its low correlation with other global markets and overall stability, even amid global volatility. Liquidity and execution: For investors focused on size and scale, the main tenors of government and policy bank bonds are highly liquid and increasingly accessible through international platforms. Access and hedging tools: Bond Connect, Swap Connect, and related initiatives are steadily making entry and risk management more practical, though further progress on futures and tax clarity would be welcomed by international players. Policy and infrastructure evolution: Regulatory authorities and market infrastructure providers are responsive to investor feedback, with a clear pipeline of enhancements in settlement, trading hours, and derivative instruments. Conclusion
RTHK
08-07-2025
- Business
- RTHK
Beijing opens up southbound Bond Connect scheme
Beijing opens up southbound Bond Connect scheme Jiang Huifen, a senior official at the People's Bank of China, says the country will support more onshore investors to access offshore bonds. Photo: RTHK Bonnie Chan, chief executive of the Hong Kong Exchanges and Clearing, says China's bond market has huge room to grow. Photo: RTHK China's central bank said on Tuesday more mainland-based institutions would be allowed to invest offshore through the Bond Connect scheme, with authorities planning to open it up to non-banking investors. The scheme enables onshore investors to access Hong Kong's bond market. Currently, financial institutions not in the banking sector are excluded from the southbound leg of the trading link. Speaking at the Bond Connect Anniversary Summit 2025, Jiang Huifen, deputy director-general of the financial market department at the People's Bank of China, said the scheme was expanded to also cover brokerages, insurers, mutual funds and wealth managers. The move will provide wider access for onshore investors to international bonds traded in Hong Kong, including offshore yuan- and US dollar-denominated debt. According to Jiang, the quota under the Swap Connect scheme, which allows global investors to trade and clear onshore yuan interest-rate swaps, will also be increased. She added that China's bond market was growing following the emergence of the global tariff war, with domestic bonds held by overseas investors rising by nearly 200 billion yuan from about 4 trillion yuan at the start of the year. "We are actively studying other measures to promote the opening up of the bond market," she told participants in a video speech. "We will also enhance the facilitation level of cross-border investment and financing, promote the establishment of a one-stop account opening platform for overseas investors." Analysts believe the move by the central bank reflected Beijing's wider efforts to open up its financial system, improve two-way capital flows by loosening restrictions on financial flows, and enhance the global appeal of the yuan. Bonnie Chan, chief executive of Hong Kong Exchanges and Clearing, said China's bond market, already the second largest in the world, had room for growth with international investors accounting for only 3 percent of the total. "We don't expect international investors to maintain such a small exposure indefinitely. There is a huge amount of room for growth," she told event participants. "With global investors increasingly seeking diversification, there is a huge opportunity for that growth to happen in the coming years. "And with unique connect channels such as Bond Connect, this is where global investors will get the best access to China's growth opportunities." Eddie Yue, chief executive of Hong Kong Monetary Authority, also hailed the expansion of the southbound Bond Connect scheme. "This will open up more channels to meet the growing demand from mainland investors, addressing their needs for diversified asset allocation," he said. "It will also bolster the development of Hong Kong's bond market by widening the investor base and enhancing market liquidity,hence increasing Hong Kong's attractiveness to both bond issuers and global investors."
South China Morning Post
15-05-2025
- Business
- South China Morning Post
China to enhance Swap Connect by extending tenor, use loan prime rate as reference
Mainland China and Hong Kong are expanding the product offerings under the Swap Connect scheme, increasing the tools to manage interest-rate risks, as regulators look to further open up the capital market to global investors. The tenor of interest-rate swap contracts would be extended to 30 years from 10 years 'to meet the diverse risk management needs of market institutions', the Securities and Futures Commission (SFC) said in a statement on Thursday. Contracts using the onshore Loan Prime Rate as the reference rate would also be introduced, it added. 'Relevant infrastructure operators in both markets will implement these enhancement measures progressively,' the SFC said, following its joint effort with the People's Bank of China and the Hong Kong Monetary Authority. Swap Connect, launched in May 2023, is the world's first derivatives mutual market access programme, with its initial phase designed to help global investors manage interest-rate risks when they invest in yuan-denominated bonds. The scheme was updated last year to enable institutions to trim capital costs and foster active trading. 08:23 China unveils policy package to guard against US tariffs ahead of trade talks in Switzerland China unveils policy package to guard against US tariffs ahead of trade talks in Switzerland Swap Connect allows domestic and foreign investors to conveniently complete interest-rate swap transactions, according to regulators. It centralises clearing through mutual access in terms of trading, clearing and settlement, without changing trading habits and in compliance with the laws and regulations of both markets.
