BNP Paribas announced that it has been awarded in China market making status for the new Bond Connect scheme and executed its first trade through the scheme, which officially launched today, providing another route for accessing the world’s third biggest bond market (USD 9.4 trillion according to Bank for International Settlements as of September 2016).
Bond Connect heralds the next major phase in China’s financial market liberalisation and BNP Paribas expects its development, alongside other related reforms, to boost foreign holdings of Chinese bonds from a current 2% closer to the international norm of about 10%. According to latest China Central Depository & Clearing data, foreign holdings of Chinese bonds rose for the third straight month to RMB 775 billion in May.
“Over the last year China has been normalizing policy and we’ve seen the currency stabilize and bond yields start to become more attractive,” said BNP Paribas Head of Global Markets for China, CG Lai. “But the MSCI’s decision to include Chinese A shares has prompted heightened expectations – like we’ve never seen before – and really demonstrates that the world needs to recognize and embrace the Chinese market. It’s only a matter of time before we see bonds also included in international indices.”
Bond Connect is complementary to the Direct China Interbank Bond Market (CIBM), QFII and the RQFII routes for offshore qualified institutions investing in China’s domestic bond markets. Featuring direct linkage between onshore/offshore setup, Bond Connect enables investors to conduct trading and settlement via a single offshore platform. For investors it is expected to be more cost and time effective compared to other access channels, with simplified application procedures, less documentation requirements and shorter turnaround times.
Philippe Benoit, Head of Asia Pacific, BNP Paribas Securities Services said, “We are seeing growing interest from offshore institutions keen to take a foothold in this market. As a universal bank we provide fully fledged integrated solutions from execution to custody, to simplify access for clients to this major market.”
“By broadening the investor pool to attract more foreign investment, we believe China should improve the quality of its debt markets, as well as generate cash inflows that will help with Beijing’s battle to stem capital outflows,” said Mr Lai.
As a Central Moneymarkets Unit member of the Hong Kong Monetary Authority, BNP Paribas can provide all services, from trading to clearing to settlement.