A scheme to make China's fixed income market more accessible to foreigners is expected to raise demand for onshore bonds.
The first phase of the Bond Connect scheme went live on July 3, allowing overseas investors to buy Chinese interbank bonds directly through the Hong Kong exchange.
According to BNP Paribas, a French bank acting as a market maker to the scheme, Bond Connect has the potential to increase foreign holdings of Chinese bonds from a current level of 2% to about 10%.
The bank also predicted that Bond Connect would spur major institutions to add Chinese onshore bonds to global fixed income benchmarks.
“It’s only a matter of time before we see bonds also included in international indices,” said CG Lai, BNP Paribas head of global markets for China.
Becky Liu, a strategist at Standard Chartered Bank, predicted foreign holdings of onshore bonds would rise by 100 billion renminbi ($15 billion) by the end of the year, an increase of about 12%.
“We expect the programme to gain strong momentum,” she said.
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