Investors outside China may soon find it easier to get their hands on the country's bonds.
A newly implemented settlement system for the bond investment scheme connecting the mainland to Hong Kong was announced Monday. It's significant because it opens up the market to more investors by now meeting a widespread regulatory requirement.
It will also pave the way, analysts said, for the country's debt securities to be included in a major global index. Beijing is aiming to have its bonds added to the Bloomberg-Barclays Global Aggregate Index, a key benchmark — much as it did for its China-listed stocks, which were ultimately included in the MSCI emerging markets index in June.
The news means "a major hurdle" was cleared toward securing "smooth inclusion of China bonds into the Bloomberg-Barclays Global Aggregate Index," Andre de Silva, HSBC's head of global emerging markets rates research, and Pin Ru Tan, an Asia-Pacific rates strategist at the bank, said in a note on Monday.
As part of its financial market opening, China has established connections with Hong Kong to enable increased access to its still highly regulated stock and bond trading.
Hong Kong, a semi-autonomous Chinese region since 1997, has long had open and liquid capital markets due to its history as a trade and finance center. China has sought to leverage that for its own financial and economic development through bond and stock "connects," enabling some trading access between mainland Chinese and overseas investors.