Bond Connect: Linking China’s onshore and offshore bond markets

The launch of Bond Connect Northbound provides overseas investors with a more efficient channel to invest in China’s onshore bond market, which is on the path to becoming the second largest bond market in the world

Nov 17, 2017 | Ken Hu

As a new cross-border investment channel, Bond Connect, provides mutual market access for bond investors between Mainland China and Hong Kong, and more broadly, the international market. The People’s Bank of China (PBOC) and the Hong Kong Monetary Authority (HKMA) announced the agreement for this new initiative in May 2017 and the program officially commenced on 3rd July, 2017. At the current stage, only the Northbound Trading (overseas investors buying/selling China onshore bonds) is allowed.

In addition to QFII/RQFII/CIBM direct, Bond Connect has provided a fourth channel for overseas investors to participate in China’s onshore bond market. It is also the channel that provides enhanced operational efficiency for overseas investors, especially regarding account opening and trade settlement. The launch of Bond Connect has opened the door for potential inclusion of China onshore bonds into major global bond indices, with initial actions expected by end-2017 or early-2018.

This paper provides an update on the recent developments in China’s bond market, compares the Bond Connect mechanism with the CIBM direct and offshore bond markets, discusses potential market implications and explores investment opportunities across China’s onshore and offshore bond markets.

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