(Yicai) July 9 -- China’s central bank will allow offshore institutions to use onshore bonds they hold through the northbound leg of the Chinese mainland-Hong Kong bond connect program as margin collateral for northbound Swap Connect transactions.

The move will help expand the application scenarios of Chinese yuan bonds as offshore qualified collateral, thus helping vitalize offshore investors’ holdings of onshore bonds and reduce their costs of participating in the northbound leg of the Swap Connect, Jiang Huifen, deputy director of the People’s Bank of China’s financial market department, said at a forum today, Shanghai Securities News reported.

The northbound route of the bond connect allows offshore investors to trade Chinese mainland bonds. The northbound leg of the Swap Connect gives foreign investors access to the Chinese mainland’s interbank derivatives market. Both programs have a southbound channel for mainlanders to access offshore markets.

The PBOC will continue to promote China’s high-end financial opening up and support Hong Kong’s prosperity and development, Jiang noted.

The focus to deepen the two-way connectivity of the financial markets in the Chinese mainland and Hong Kong will be on three main aspects in the next stage, which are expanding the application scenarios of onshore bond positions to enhance their attractiveness, enrich the risk management tools for investors under the northbound bond connect, and take full advantage of the southbound route of the scheme, Eddie Yue, chief executive of the Hong Kong Monetary Authority, said at the forum.

The risk diversification brought by the competitive interest rates of Chinese yuan bonds and the low correlation of yuan bond assets will continue to provide an indispensable allocation option for offshore institutions’ global investment strategies, Zhang Yi, president of the China Foreign Exchange Trade System and chairman of the Bond Connect, said at the forum.

Editor: Futura Costaglione