HSBC announced its facilitation of the first Standardised Bond Forward (SBF) trade for an offshore investor in the China Interbank Bond Market (CIBM), becoming the first onshore bond settlement agent to enable foreign investors to complete such a transaction.
The first trade was placed by the overseas funds of Singapore-headquartered investment manager Dymon Asia1 in a transaction designed to support liquidity management and risk hedging for its onshore interbank bond market investments.
The product was initially introduced by the China Foreign Exchange Trade System (CFETS) and the Shanghai Clearing House in 2015 with its cash delivery mechanism optimized in 2018. Since their introduction, SBFs have continued to steadily develop, helping investors fulfill their diversified trading strategies and hedge against their holdings of Policy Bank Bonds issued by China’s state-owned policy banks including China Development Bank and the Agricultural Development Bank of China.
Policy Bank Bonds accounted for 21.8% of total bond holdings by foreign investors in China’s interbank bond market at the end of August 2023, after only China Government Bonds, which accounted for 65.6%2 .
Rafael Moral Santiago, global head of Country Management for Securities Services at HSBC, said in a statement: “We are pleased to lead the way in facilitating the use of innovative risk management solutions for foreign investors as they increasingly look to put their China onshore bond positions to work. Through the ready-made nature of standardized instruments, we can more quickly and cost-effectively manage client interest rate risk and liquidity needs in response to changing market conditions.”
Shawn Yuan, co-chief investment officer (CIO) of the Dymon Asia MultiStrategy Investment Fund and CIO of the Dymon Asia China Absolute Return Bond Fund at Dymon Asia Capital, an alternative investment management firm in Asia, said in a statement: “Dymon Asia is proud to be the first overseas investor to access mainland China’s Standardised Bond Forward market today with the support of HSBC as our bond settlement agent. SBFs empower active global investors like us to efficiently manage interest rate risk from our China bond investments, and in turn makes RMB-denominated investments more attractive.”