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SHANGHAI, May 15 (Reuters) - Hong Kong's stock exchange on Monday launched a new Connect scheme linking the financial hub with the mainland which offers access to interest rate derivatives, helping offshore investors in Chinese bonds hedge their exposure.
The interest rate Swap Connect scheme will also help promote the yuan currency's global status, Hong Kong Exchanges & Clearing Ltd (HKEX) CEO Nicolas Aguzin said.
More than 25 offshore investors traded onshore renminbi (RMB) interest rate swaps with a notional value exceeding 8.2 billion yuan ($12.0 billion) on the day of debut, according to data from HKEX.
They were helped by 20 banks and brokerages which acted as dealers, including HSBC, Standard Chartered, Citi and Chinese banks such as Industrial and Commercial Bank of China and Bank of China.
Aside from helping offshore investors to manage interest rate risk and lower financing costs, the new scheme would improve efficiency of clearing and capital usage, said Haifeng Xu, deputy chief executive at Bank of China (Hong Kong) Ltd.
Xu added that in recent years mainland Chinese and Hong Kong regulators had been continually optimising Connect schemes, expanding channels for offshore investors to invest in onshore markets, making the process more convenient.
Monday's debut also came amid growing expectations of a policy rate cut from China's central bank.
"In a falling rate cycle investors may want to tactically hedge for a shorter period of time using interest rate swaps. It’s important to have such tools as they allow for more flexibility on positioning our portfolios," said Freddy Wong, head of Asia-Pacific fixed income at Invesco based in Hong Kong.
Foreign investors held 3.21 trillion yuan worth of bonds traded in China's interbank bond market as of the end of March, equivalent to about 2.5% of the entire market's outstanding bonds under custody, according to official central bank data.
