Global investors have ramped up use of Chinese bonds in short-term borrowing agreements in Hong Kong, taking advantage of new measures from mainland and Hong Kong regulators that took effect on Monday.

Several banks, securities firms and hedge funds completed their first trades under the offshore Bond Connect repurchase (repo) business set up by the Hong Kong Monetary Authority (HKMA), leveraging enhancements announced last month, including the repledging of bond collateral during the lifetime of the repo and expanding the tradeable currencies of repos.

CITIC Securities International Capital Management (known as Citic CLSA), British hedge fund Capula Investment Management and GF Global Capital completed cross-currency repo transactions in US dollars, euros and Hong Kong dollars as well as offshore yuan repo trades, using onshore bonds held through the northbound Bond Connect as collateral, according to HSBC, one of the programme's 11 market makers in Hong Kong.

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CLSA and GF Global carried out similar trades with Standard Chartered, which also backed Eastfort Asset Management and Huatai Financial in completing their first cross-currency repos using onshore bonds as collateral. Standard Chartered said these deals supported the HKMA's efforts to "improve the market-based mechanism for offshore [yuan] liquidity management and foster investor participation".

The transactions underscored investors' growing confidence in China's capital market liberalisation and reinforced Hong Kong's position as the leading offshore yuan hub, as Chinese bonds gained appeal for their diversification benefits and relative stability, according to analysts.

"As the People's Bank of China [PBOC] and the HKMA continue to enhance the market mechanism of Bond Connect, we have seen a growing number of client inquiries," said John Thang, Standard Chartered's head of markets and strategic client management and solutions for Hong Kong, Greater China and North Asia.

He expected the new enhancements would further increase the attractiveness of onshore bonds and attract more international investors to participate in Bond Connect, which allows mutual market access through financial connections between mainland China and Hong Kong. Hong Kong's status as an international financial centre and global offshore yuan hub would also be strengthened, Thang added.

Foreign investors currently hold about 3 per cent of China's US$22 trillion yuan-denominated bond market - a share that could rise to 10 per cent, said Philippe Dirckx, managing director and head of fixed income at the Asia Securities Industry and Financial Markets Association, in an interview last month.

The Hong Kong Monetary Authority logo is seen in IFC Two in Central. Photo: Jonathan Wong alt=The Hong Kong Monetary Authority logo is seen in IFC Two in Central. Photo: Jonathan Wong>

"The [policy] measures are supportive in improving market efficiency and collateral flexibility of [yuan] bonds, which is structurally important for financial opening and attracting investors aiming for global asset diversification," said Gary Ng, a senior economist at Natixis Corporate and Investment Bank.

While the size of the offshore yuan bond repo business would certainly grow, the short-term attractiveness still depended on other factors, such as China's monetary policy and interest rate, Ng added.

"Repo promotion marks a meaningful and important evolution of China's bond market," Capula said. "We are committed to support the market's long-term development."

HSBC said it remained at the forefront of China's capital market liberalisation. "We're excited to facilitate these maiden trades for our clients and to support market development as the Bond Connect repo market converges towards international market practices," said Cheuk Wong, the bank's head of markets and securities services for Hong Kong. "We believe these enhancements offer significant utility and will be highly welcomed by offshore investors."

More new measures under the cross-border connect schemes were being formulated, according to PBOC and HKMA officials last month. These included improvements to Swap Connect, including new loan prime rate-linked contracts, expanded dealer participation, and higher trading limits to strengthen risk management in interest-rate swaps.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.

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