Deutsche Bank, HSBC and BNP Paribas kick-off Bond Connect

Bond Connect was established to give international investors access to China’s $9 trillion bond market.

Deutsche Bank, HSBC and BNP Paribas are among the first banks to execute transactions through China’s newly launched Bond Connect.

Having gone live on Monday this week, more than $1 trillion of Chinese bonds have already been purchased by interbank investors.

The initiative was established in a bid to give international investors northbound access to Mainland China’s $9 trillion interbank bond market.

Deutsche Bank confirmed it had executed two transactions, while HSBC said it will act as an underwriter for the Agricultural Development Bank of China in its first public issues of policy financial bonds to both domestic and overseas investors.  

BNP Paribas’ head of global markets for China, CG Lai, explained the initiative will likely “improve the quality of [China’s] debt markets, as well as generate cash inflows that will help with Beijing’s battle to stem capital outflows.”

Last week, Tradeweb confirmed it would be the first firm to offer an offshore trading platform for Bond Connect, through a connection with the China Foreign Exchange Trade System (CFETS).

Institutional investors will be able to trade directly with Mainland Chinese liquidity providers in the CFETS market using Tradeweb’s trading platform.

Bond Connect is seen as the next major phase in the liberalisation of China’s financial market. BNP Paribas has predicted the scheme will boost foreign holdings of Chinese bonds from 2% to 10%.

A memo from Goldman Sachs described the Bond Connect as ‘an important milestone’, alongside projections of an additional $1 trillion fixed income instruments globally allocated to China domestic bonds over the next 10 years.

Similarly, Standard Chartered estimated foreign holdings of onshore bonds will increase by CNY 100 billion to CNY 950 billion by the end of this year due to the Bond Connect.

However, DBS Bank warned initial inflow could be limited due to “investors’ concerns of liquidity and capital controls.

“Longer-term, it would be crucial to consolidate the new bond link with other existing investment schemes... to improve market efficiency.”