(Yicai) April 23 -- China's Bank of Communications (BOCOM) was named the exclusive pilot bank for the two-way interconnection mechanism between the bond markets in China and Brazil.

The People's Bank of China has approved BOCOM as the exclusive pilot bank for the China-Brazil Bond Connect scheme, the Shanghai-based lender announced yesterday

Under the bond connect mechanism, Chinese investors will be able to invest in Brazil's bond market through BOCOM's asset custody and clearing services, while Brazilian and other international investors will be able to access China's bond market through Banco BOCOM BBM S.A., forming a closed loop for two-way investment.

China's bond market is close to CNY200 trillion (USD27.6 trillion) in size, ranking second in the world and boasting high liquidity and stable returns. It can serve as an important safe-haven asset option for global investors.

The Chinese and Brazilian bond markets show strong complementarity in terms of yields, financing costs, and asset allocation needs, which was a core market driver for the launch of the China-Brazil Bond Connect.

China has been Brazil's largest trading partner for many years, with the scale of bilateral trade continuing to expand, and demand for local currency settlement, cross-border investment, financing, and exchange rate risk management has also increased, providing a solid practical foundation for the cooperation.

Through the China-Brazil Bond Connect, high-quality Brazilian entities can more conveniently access the Chinese bond market to issue panda bonds and secure low-cost Chinese yuan financing. The scheme not only offers new investment channels for Brazilian and international investors but also helps Chinese institutional investors meet their global asset allocation needs.

China established a cross-border bond market opening-up system deeply connected with Hong Kong and developed markets, centered on the Bond Connect and Swap Connect. This link with the Brazilian market extends the interconnection mechanism to core emerging markets, showing that China's financial opening-up is accelerating its expansion from regional hubs to a global network.

Different from the China-Hong Kong Bond Connect, the China-Brazil Bond Connect has a cross-border service chain running fully through the same Chinese institution both at home and abroad via local branches, which promotes direct alignment of market rules, custody, and settlement, as well as regulatory coordination between the two markets.

This represents a brand-new exploration step for the institutional opening-up of China's bond market and will also accumulate experience for future financial market interconnection between China and more emerging markets.

Moreover, through the bond connect mechanism and the expansion of bilateral local currency swaps, China and Brazil will effectively reduce their reliance on the US dollar system.

Editors: Tang Shihua, Futura Costaglione