Southbound trading under the Bond Connect program between the Chinese mainland and Hong Kong will be launched on Sept 24, the People's Bank of China and the Hong Kong Monetary Authority said on Wednesday, and immediately drew plaudits from market mavens.
Southbound trading will allow mainland investors to trade offshore bonds through Hong Kong.
The joint announcement came days after the official launch of the cross-boundary Wealth Management Connect Pilot Scheme, marking another milestone in the opening up of the Chinese financial market.
Carrie Lam Cheng Yuet-ngor, chief executive the Hong Kong Special Administrative Region, said the two-way connection between the bond markets of Hong Kong and the Chinese mainland will "promote further mutual access between the two financial markets, set a new milestone for meeting the objectives laid down in the 14th Five-Year Plan (2021-25) and reinforce Hong Kong's status as an international financial center".
"Such positive impacts are fully illustrated in the northbound trading under Bond Connect with foreign holding of mainland onshore bonds increased from about 880 billion yuan ($137 billion) in 2017 to 3,800 billion yuan as of August and the average daily turnover increased by 17 times over the same period," she said.
In the initial stage of the program, eligible investors will include a selected number of primary dealers for open market operations in the mainland as approved by the central bank, qualified domestic institutional investors and RMB qualified domestic institutional investors.
All types of bonds issued offshore and tradable in the Hong Kong bond market will be allowed to trade, with primary dealers subject to an annual quota of 500 billion yuan and a daily quota of 20 billion yuan.
Eddie Yue, chief executive of the HKMA, said given that the demand of mainland financial institutions for overseas asset allocation has continued to grow, "the southbound trading will enable mainland financial institutions to increase the allocation of offshore bond assets through Hong Kong in a convenient and secure manner".
He expressed confidence that southbound trading will further deepen the opening up of mainland financial market and enhance the vibrant bond market landscape in Hong Kong, which will help consolidate the special administrative region's unique and irreplaceable status as an international financial center.
Edmond Lau, deputy chief executive of the HKMA, said the quota would be extended depending on the market's reaction to the new program and investors' demand. He was optimistic that demand for bond trading in the mainland will be sizable. "But it takes time to (increase the quota)," Lau said.