(Yicai Global) May 16 -- The so-called Swap Connect scheme between the Chinese mainland and Hong Kong bond markets launched yesterday, opening up the USD3 trillion onshore interest-rate swap market. Amid keen investor interest, the first day’s turnover was CNY8.2 billion (USD1.2 billion).

Twenty market makers and 27 foreign investors made 162 Chinese yuan interest rate swap transactions yesterday, including for Shanghai Interbank Offered Rate and FR007, data from the Foreign Exchange Trading Center showed. The market’s initial daily limit is set at CNY20 billion (USD2.9 billion).

The head office of Bank of Communications made 12 transactions with 11 overseas financial institutions for a total of CNY470 million (USD68 million) yesterday, Wang Zhijian, senior manager of the Chinese lender's financial market department, told Yicai Global.

Its Hong Kong branch also completed the first batch of transactions through the Swap Connect to the tune of CNY430 million, Wang noted.

Deutsche Bank, which also made its first Swap Connect transaction, has received inquiries from many foreign investors, including commercial banks, funds, and sovereign institutions, and they are very eager to take part in the trade as soon as possible, said Xu Zhaoting, its head of yuan trading for global emerging markets.

Some of Standard Chartered Group’s member banks in the Chinese mainland, Hong Kong, and London also took part in the first day’s trading.

The Swap Connect will provide foreign investors with more complete and convenient risk management tools to participate in China's bond market, Yang Jing, vice president of Standard Chartered Bank China, told Yicai Global. It will boost their confidence to go deeply into China's bond and financial derivatives markets, he noted.

The custody balance of foreign institutions in China's bond market was CNY3.2 trillion (USD460 billion) as of the end of last month, equal to more than 2 percent of the custody balance in China's bond market. Positions in government bonds neared 10 percent.

Editors: Shi Yi, Martin Kadiev