extending the scheme's Southbound leg, which allows mainland investors to access the Hong Kong financial derivatives market "in due course".
The launch of the Northbound Swap Connect will enable
foreign investors outside China access to interest rate swaps
(IRS) traded in the onshore interbank market.
Currently, offshore investors use non-deliverable
interest rate swaps to hedge against interest rate risks of
their underlying China bond positions. These swaps are settled
in U.S. dollars.
As there are fewer dealers in Hong Kong that offer such instruments, offshore investors often face a heftier hedging cost than onshore counterparts, analysts said.
"Swap Connect and the participation of overseas investors would help diversify the investor base, improve price discovery, and further increase market liquidity," said Bank of America's analyst Janice Xue in a research note published last week.
Standard Chartered bank said it welcomed the launch.
"The programme will facilitate global investors’
management of interest rate risks for their bond investments in
Mainland China, enhancing the attractiveness of yuan-denominated
assets as part of their portfolios and furthering the
internationalization of the yuan," said John Thang, head of
financial markets, Hong Kong and Greater Bay Area at Standard
Chartered.
(Reporting by Meg Shen and Georgina Lee; Editing by Toby Chopra
and David Gregorio)
