Investors show big interest in using onshore Chinese bonds as repo collateral in Hong Kong.
Global investors showed strong interest in using onshore Chinese bonds as collateral in short-term borrowing agreements in Hong Kong, burnishing the city’s status as an offshore yuan hub.
The new arrangement, which kicked off on Monday, is part of a slate of policy measures unveiled last month by central banks on the mainland and Hong Kong to deepen cross-border financial connectivity. The repurchase-agreement measure had been seen as a “last-mile” reform that would ease capital-flow controls, help foreign investors generate greater returns and manage liquidity.
A repo is a short-term borrowing transaction to sell securities and repurchase them later at a slightly higher price. The seller obtains funds at lower rates, while the buyer gains an attractive yield from the collateral, typically in the form of short-term secured and liquid instruments.
On Monday, financial institutions including Citic Securities International Capital Management, GF Global Capital and Eastfort Asset Management were among the first investors to complete offshore yuan repo transactions using their onshore Chinese bonds under the northbound Bond Connect scheme, according to Standard Chartered, one of the programme’s 11 market makers in Hong Kong.
Source: SCMP