HSBC China has facilitated the first Interest Rate Swap (IRS) trade by overseas institutional investor (OII) via the central counterparty clearing model in the China Interbank Market (CIBM).
The new channel allows HSBC international clients to tap into China's bond market while also adding to their risk mitigation capabilities, HSBC said in a statement.
The bank said that it acted as the counterparty and bond settlement agent for the transaction, which was conducted by Singapore-based investment firm Dymon Asia Capital. Bank of Communications provided the clearing service to Dymon Asia for the trade.
While foreign investment is growing, investor demand for risk hedging is on the rise, too"
Sophia Chung, head of HSBC Securities Services in China, said: "China's bond market, now the second-largest in the world, is opening its doors ever wider to international investors. While foreign investment is growing, investor demand for risk hedging is on the rise, too.
"The trade by Dymon Asia showcases that foreign investors are tapping deeper into the Chinese market and we believe it will lead to more similar trades in future by investors to mitigate their investment risks. With the potential inclusion of Chinese bonds into more global indices, we expect the momentum of foreign entry to further continue and diversified derivatives will make it easier and safer for them to invest."
The interest rate swaps channel allows clients of banks like HSBC to access the CIBM, the second largest bond market globally, and expand risk mitigation capabilities. Overseas institutional investors can use the onshore interest rate derivatives for hedging portfolios and risk management.
"This trade sets the bar for an accelerated trend of foreign investors based in Singapore to tap the deep pool of opportunity in the Chinese bond market," HSBC Singapore's CEO Tony Cripps said.
Foreign investors have been increasing their holding of Chinese bonds for 13 consecutive months since December 2018. They held about 2.19 trillion yuan ($320bn) of Chinese bonds by the end of 2019, according to China Foreign Exchange Trade System (CFETS).
"Dymon Asia is proud to be a part of a milestone - the first successful IRS trade under central counter party clearing model by an OII in the CIBM," said Mark Wong, COO at Dymon Asia. "This reiterates our commitment and focus in the Asia region, giving us opportunities to further our growth as well as deepen our insights and participation in local onshore markets."