Explainer | China’s repo market: what changes are in store for banks, global bond investors
- The Hong Kong Monetary Authority has added bonds issued by the Chinese government and policy banks as eligible collateral for its yuan liquidity facility
- The next big impending change is letting more foreign investors into China’s onshore repo market
We talked to a senior HKMA official, investment bankers and analysts to highlight the importance of these impending changes and concerns among the industry players.
What is the initial market reaction?
The feedback has generally been positive, according to Kenneth Hui, an executive director at the HKMA. Adding Chinese government bonds and policy bank bonds marks the first time these yuan-denominated securities have been formally recognised as eligible collateral in the offshore market, he added.
Transactions were completed on Monday making use of expanded eligible collateral, the HKMA said, adding that the Facility continues to operate in an orderly manner.
The PBOC and HKMA initiatives could facilitate the diverse use of Chinese bonds held by Bond Connect investors, such as bridging intraday funding gaps, Hui said in a written reply to the Post.
“It creates a more comprehensive ecosystem and seamless investment experience for investors accessing the onshore markets via Bond Connect and could further encourage participation in the scheme,” he added. “The gradual opening up of the onshore repo market will address offshore market players’ growing need for funding and liquidity management as they increase their allocation to the onshore bond market.
