Bond Connect opens, giving investors a window to mainland

Hong Kong Monetary Authority Chief Executive Norman Chan (2nd L), People's Bank of China Deputy Governor Pan Gongsheng (2nd R) and Hong Kong Chief Executive Carrie Lam (R) attend the launching ceremony of Bond Connect at Hong Kong Exchanges in Hong Kong, China, July 3, 2017.[Photo/Agencies]

The Chinese mainland's Bond Connect arrangement with Hong Kong－a long-awaited program that gives overseas investors direct access to the mainland's $10 trillion debt market－opened on Monday.

The cross-border bond trading link will operate alongside the two existing Stock Connect systems between stock exchanges in Shanghai and Shenzhen and their Hong Kong counterparts; but it will allow only international and Hong Kong investors to trade onshore bonds in the initial phase.

Newly inaugurated Chief Executive of the Hong Kong Special Administrative Region Carrie Lam Cheng Yuet-ngor said at the launch ceremony in Hong Kong that Bond Connect "marks another new chapter of mutual market access between the mainland and Hong Kong".

Lam, in her first official event since taking office as the first female leader of Hong Kong on Saturday, said the next step－to be taken at the proper time－is to launch "southbound trading", which will allow mainland investors to buy and sell Hong Kong-listed bonds.

People's Bank of China Deputy Governor Pan Gongsheng said at the ceremony that Bond Connect "demonstrates the significance of Hong Kong as a world-renowned international financial center and the mainland financial industry's gateway to the world", and it "showcases the central government's determination to shore up the long-term prosperity and stability of Hong Kong".

Bond Connect stands as a golden opportunity that Hong Kong cannot afford to miss in cementing its role as the most important offshore price-setter for the renminbi, Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing Limited, said after the ceremony.

"This determines whether Hong Kong will win out as the most important financial hub in Asian trading hours. That's where the significance of Bond Connect really lies," Li said.

The newly launched trading channel wrapped up its first trading day with volume of 7.05 billion yuan ($1.03 billion). Some 142 deals were done between 70 overseas financial institutions and 19 market makers－firms that maintain a stable and liquid market for a particular security by buying and selling it as circumstances require－according to a statement on Chinamoney.com.cn, a website of National Interbank Funding Center.

The buying side reached 4.9 billion yuan in 128 deals, underscoring the huge appetite of international investors. A deal between Bank of Communications and its Macao branch was said to be the first under the program.

Some 20 market makers for Bond Connect have been confirmed and approved by the People's Bank of China, including 14 Chinese mainland institutions and six international ones.

HSBC joined the likes of China Merchants Bank, Deutsche Bank, GF Securities and CITIC Securities, which rushed to finish its first deal as a market maker through the new link.

To mark the launch, China Development Bank and Agricultural Bank of China issued a combined 35 billion yuan in bonds for tender on Monday.

As a fitting tribute to the 20th anniversary of Hong Kong's return to the motherland, the cross-border bond train marks a milestone on the nation's journey to open up its financial markets,and moves a step closer to positioning its onshore bonds in the group of global fixed income indexes.

Goldman Sachs and HSBC said in their latest reports that the new trading channel, with no quota or need to stipulate an intended investment amount, may pave the way for the world's third-largest debt market to be included in global indexes.