By Enoch Yiu

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Hong Kong note-issuing banks HSBC and Standard Chartered on Monday completed trades at the launch of the city’s cross-boundary bond repurchase (repo) scheme, according to the two lenders.
The cross-boundary bond repo business was launched by the Hong Kong Monetary Authority (HKMA) and the People’s Bank of China, alongside other mainland authorities, as the latest initiative to enhance the Bond Connect scheme, which would encourage more international investors to trade in yuan-denominated mainland bonds.
Under the scheme, all overseas institutional investors who put money into the onshore bond market, including those trading via the Bond Connect scheme, would be allowed to take part in the onshore repo business and to remit yuan obtained for offshore use.
“This measure will bolster offshore yuan liquidity in Hong Kong, increase overseas investors’ interest in allocating yuan assets, and promote more diversified development of offshore yuan businesses,” HKMA chief executive Eddie Yue Wai-man said on Friday.
The transactions made by HSBC and Standard Chartered reflected investors’ growing confidence in China’s capital market liberalisation and reinforced Hong Kong’s position as the leading offshore yuan hub, as Chinese bonds showed diversification benefits and relative stability.
As a bond investor, HSBC said it had already completed trades with onshore financial institutions to get yuan funding via the new repo scheme.

HSBC China assisted Dymon Asia, an Asia-focused investment management firm based in Singapore, in completing the first repo trade in the China Interbank Bond Market, the lender said in a statement.
Overseas investors from Asia, the Middle East and the UK have tapped the enhanced access to the onshore yuan markets via the new scheme, according to Cheuk Wong, head of markets and securities services in Hong Kong at HSBC.
“Many are keen to leverage Hong Kong’s strengths as an unrivalled yuan risk management and financing hub, tapping into a deeper and more stable pool of yuan liquidity,” Wong said.
Standard Chartered said it took part in the newly launched scheme with Citic Securities and through Bond Connect with China Construction Bank.
“Marking another milestone in the market, the newly launched cross-boundary bond repo business can meet international investors’ needs of diversified asset allocation and flexible liquidity management,” said John Thang, head of markets and strategic client management and solutions for Hong Kong, Greater China and North Asia at Standard Chartered.
The new scheme also provided more stable liquidity support for Hong Kong’s offshore yuan market and would lower the yuan funding cost in the long run, Thang said in a statement on Monday.
While mainland China is the world’s second-largest bond market, the percentage of foreign holdings of onshore bonds was less than 3 per cent as of August.
That indicated there was more room for growth for foreign investors to invest in the market, according to Standard Chartered.
“We believe the new measure will effectively enhance the attractiveness of onshore bonds, promote the use of yuan as an investment and funding currency in international markets,” Thang said.
He added that the new scheme would “boost the participation of foreign investors in the onshore bond market over time,” further highlighting Hong Kong’s “unique competitive advantages as an international financial centre and an offshore yuan business hub.”