HONG KONG Jan 6 A cross-border platform linking
China's onshore and offshore debt markets could boost offshore
yuan liquidity, Hong Kong's stock exchange said in a report
posted on its website on Friday.
Such a "Bond Connect" would expand an existing scheme by
allowing foreign institutions to use yuan bonds held offshore as
collateral in the onshore repo market, helping them raise funds
and channelling liquidity from the onshore to offshore market.
Since 2015, foreign institutions have been allowed to
conduct bond repos in the mainland interbank market but they can
only use onshore bonds as collateral.
Setting up the platform could thus "not only increase the
offshore RMB (yuan) liquidity, but also improve the tradability
and usability of offshore RMB assets and sustain the stability
of the offshore RMB market", the report said.
Offshore yuan liquidity has become very tight since the
Christmas holiday due to seasonal factors and a shrinking pool
of offshore yuan.
The CNH Hong Kong Interbank Offered Rate benchmark (CNH
Hibor), set by the city's Treasury Markets Association (TMA),
was fixed at 61.3 percent on Friday for overnight contracts, its
highest level in a year.
The overnight implied deposit rate for offshore yuan
even jumped to 112 percent on Friday morning trade.
But market players have said even a scheme like that
proposed might not improve offshore yuan liquidity as foreign
interest in offshore Chinese bonds has dwindled as the yuan's
sharp depreciation in 2016 offsets their relatively high yields.
(Reporting by Meg Shen; Editing by Catherine Evans)