RMB sovereign bonds to hit HKEx
China’s Ministry of Finance and Hong Kong
Exchanges and Clearing Limited (HKEx) has signed an agreement on the listing and
trading of renminbi-denominated sovereign bonds in Hong Kong. The move marks
another step in a series of liberalisations that have opened up the currency to
international markets, and increasingly make the currency a viable option for
Renminbi-denominated sovereign bonds issued by the ministry
can now list and trade on the HKEx – a move which comes after the previous
week’s announcement that the ministry will issue a batch of RMB23 billion
(US$3.6 billion) in sovereign bonds, forming the first Hong Kong issuance.
Foreign central banks are already allowed to purchase onshore renminbi bonds
using swap lines with the People’s Bank of China, but allowing the bonds to
trade in Hong Kong is a strong signal of the government’s intention to
China’s Ministry of Finance first launched
RMB-denominated sovereign bonds to retail and institutional investors in Hong
Kong in September 2009 but the RMB6 billion issuance was made available on a subscription basis, rather than
being tradable on HKEx.
“Expanding into products related to fixed income, currency
and commodities is a key aspect of our current strategy. Therefore, the listing
of RMB-denominated sovereign bonds is an important step for us,” said Charles
Li, chief executive, HKEx. Responding to emailed questions after the
announcement, the HKEx commented that the sovereign bonds “will complement the
RMB-traded products currently listed on the exchange,” noting this currently
comprises 27 renminbi bonds, one renminbi Real Estate Investment Trust (REIT)
and one renminbi exchange-traded fund (ETF).
HKEx also noted that the internationalisation of the
renminbi was a key long-term objective for the mainland, resulting in the
latest product development, adding that investor interest in and demand for
renminbi products are a natural result of this internationalisation.
Speaking at the signing ceremony, Sun Xiaoxia, director-general
of the ministry’s Finance Department said his office “continues to issue
renminbi-denominated sovereign bonds in Hong Kong this year and has steadily
increased the size of the issuance as a way to show the Central Government’s
strong support for the economic development of Hong Kong.” She added that the
move would strengthen financial cooperation between the mainland and Hong Kong,
and help enhance the city’s bond market and status as an offshore-renminbi
Further development is anticipated on a range of new
renminbi instruments, expanding offshore market even more. The HKEx highlights
that one of the key products coming in the near future is exchange-traded
currency futures, settled in renminbi. The HKEx has received regulatory
approval for this and is planning to introduce the instruments in Q3, subject
to market readiness, it said. The contract will provide a way for investors to
hedge renminbi exposure, and will be quoted in renminbi pre-US dollar, margined
in renminbi, with the trading and settlement fees also charged in renminbi.
Other initiatives afoot include developing better platforms to support
renminbi-denominated trading, and efforts to “considerably” enlarge the HKEx’s
derivatives product suite, including for renminbi instruments.
Reporting by Harry Thompson