China bonds to be accepted as collateral for Swap Connect by end-2024

Hong Kong Exchanges and Clearing announced that the People’s Bank of China has allowed China Government Bonds and Policy Financial Bonds, held by international investors through Bond Connect, as collateral for Northbound Swap Connect.

HKEX’s clearing subsidiary, OTC Clear, plans to start accepting these instruments as collateral for Swap Connect, with a targeted launch by the end of 2024. OTC Clear and will work closely with the Securities and Futures Commission and the Central Moneymarkets Unit of the Hong Kong Monetary Authority.

HKEX’s co-head of Markets, Glenda So, described Swap Connect as “the world’s first derivatives mutual market access program.” As of the end of May 2024, a total of 61 overseas institutions have participated in Northbound Swap Connect. The average daily turnover of Swap Connect totaled RMB20 billion ($2.8bn) in May 2024, up sharply from about RMB3 billion in May 2023.

This latest enhancement to Northbound Swap Connect is expected to improve capital efficiency of investors in the program by offering them more non-cash collateral options and boost the attractiveness of holding onshore RMB bonds for international investors participating in Bond Connect.

So said in a statement: “This development will add even more synergies between the Bond Connect and Swap Connect programs, and help to further support international investors’ participation in China’s bond market. We look forward to working closely with our Mainland partners, regulators and market participants to continue enhancing Swap Connect and explore the application of China bonds as collateral for more HKEX products, facilitating the continued opening of China’s financial markets and supporting the internationalization of the RMB.”


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