(Yicai Global) July 4 -- The Bond Connect program linking mainland China to overseas bond trading markets received a warm response from investors on its first trading day.
Yesterday's Bond Connect trading turnover amounted to USD1.04 billion (CNY7.05 billion), and trading covered government bonds, policy financial bonds, government-backed institutional bonds, negotiable certificates of deposit, medium-term notes, short-term financing bills and corporate bonds. Government-backed bonds were the most popular among foreign investors.
BNP Paribas Head of Global Markets for China Lai Changgeng attended the Bond Connect program's opening ceremony yesterday. "The atmosphere was very warm," Lai told Yicai Global. The morning session's turnover was more than CNY6 billion.
The first batch of qualified foreign investors had 86 members, mainly large financial institutions, securities companies, funds and the like, Lai said. More foreigners are expected to partake in trading, with a variety of investors using a mix of tools to trade, said Lai.
Some 142 deals, worth CNY7.05 billion, were made between 19 quotation institutions and 70 foreign institutions on the secondary market yesterday. Foreign institutions executed 128 buy orders valued at CNY4.9 billion.
Based on the first day's summary trading data, government bonds contributed more than a half of trading volume. Policy financial bonds contributed about 20 percent of volume. Government-backed institutional bonds, including railway bonds and local bonds, took a share of more than 10 percent; negotiable certificate of deposits represented about 10 percent; and medium-term notes, short-term financing bills and other credit debts accounted for less than 1 percent.
Bond Connect has a certain appeal to foreign institutions, especially small and medium-sized ones, said ICBC International Chairman Cong Lin.
Chinese bonds generally offer higher yields than bonds in Europe and the United States, so the Bond Connect can be a good way for international investors to enhance income and diversify their investments, he said.
Although Kevin Sheekey, global executive vice president at Bloomberg, is a senior executive, like most of America's middle class, his pension portfolio does not include anything from China. He is very excited about the Bond Connect.
"Currently, my pension does not include anything from China, but I believe that 10 to 15 percent of my pension will come from China in the near future, and I'm very excited about that," Sheekey told Yicai Global.
Bloomberg communicated with many international investors, he said. "Nearly all investors are aware of China's economic growth and hope to benefit from it," he said.
Under the existing trading rules, the Bond Connect program allows overseas investors to trade in spot bond transactions. Trading may be gradually expanded to bond repurchase, bond lending, bond forwards, interest rate swaps and forward rate agreements, China's central bank said.
The program consists of Northbound and Southbound mechanisms. Northbound trading allows investors to purchase mainland Chinese bonds through Hong Kong's bond market, while Southbound trading allows mainland Chinese investors to purchase bonds in Hong Kong through China's bond market.
Northbound trial operations began yesterday in accordance with arrangements made by the People's Bank of China and the Hong Kong Monetary Authority. No timetable has been set for the introduction of Southbound trading.