Major banks kick off offshore yuan bond repo deals

Major local banks such as the Hongkong and Shanghai Banking Corporation completed several offshore yuan bond repurchase transactions using onshore China bonds as collateral today, the first day of the offshore repo arrangement’s launch.

Repo deals are short-term borrowings under which securities are sold to investors and bought back later at a slightly higher price.

Bank of China Hong Kong (2388), Standard Chartered (2888) and Hang Seng Bank (0011) were among the first banks to execute offshore yuan repo transactions.

The trades were carried out for several overseas and Hong Kong institutional investors, including banks, securities firms and hedge funds.

The new arrangement allows international investors who have purchased bonds through Northbound Bond Connect to engage in repurchases in the offshore market for the first time, HSBC said.

These groundbreaking transactions leverage the eligible onshore bonds held under the Northbound Bond Connect scheme as collateral and mark a key milestone in the continued development of offshore yuan liquidity, Hang Seng Bank said.

"Using onshore bonds as collateral in offshore repo financing marks a significant milestone, unlocking a range of financing and liquidity management solutions for offshore investors in the world's second-largest fixed income market.

The strong interest from investors in today's launch highlights Hong Kong's pivotal role in both deepening mainland China's capital markets and making them more accessible to global participants,” William Shek, head of markets and securities services, Hong Kong at HSBC, said.

The Hong Kong Monetary Authority announced in January the offshore repo arrangement to further enhance the market-based arrangement for offshore yuan liquidity management and increase Hong Kong's competitiveness as an offshore yuan business hub.

JUNE CHEN