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China promotes its bonds for collateral amid global yuan push

SHANGHAI, Sept 15 (Reuters) - China is promoting the global use of yuan-denominated bonds as collateral, as Beijing accelerates its push for broader international use of the yuan to guard against rising Sino-U.S. tensions.

China Central Depository & Clearing Co (CCDC), China’s main interbank market clearing house, on Tuesday announced a joint white paper on the use of yuan-denominated bonds as collateral in offshore markets published together with the International Swaps and Derivatives Association (ISDA).

CCDC and ISDA officials said their research followed the phased implementation of a mandatory margin system for over-the-counter derivatives starting in 2016.

“Given the rapid increase in the size of China’s bond market and the opening to overseas investors. It is not surprising that firms are keen to understand the implications of using RMB denominated Chinese government bonds as collateral,” Scott O’Malia, chief executive officer of the ISDA said at a forum.

Reuters was not immediately able to confirm specifics of the paper, which a spokesperson for the ISDA said has not yet been finalised.

But speaking at the same forum, Wang Weidong, head of the global markets department at Bank of China, suggested measures including promoting global recognition of yuan bonds as collateral, encouraging international agencies to use Chinese bonds as initial margins in derivative trading, and promoting Chinese bond-backed foreign-currency financing in China.

Chinese bonds would play an important role in meeting global demand for safe assets, particularly in an environment of low global interest rates and a growing shortage of high-quality collateral, said Xu Liangdui, vice president of CCDC told the forum.

Foreign interest in Chinese yuan-denominated bonds has been steadily rising, with foreign investors raising their holdings for a 21st straight month in August.

Chinese regulators have recently revived their push to globalise the yuan, though internationalisation continues to be limited by China’s stringent capital controls.

Reporting by Andrew Galbraith and Samuel Shen; Editing by Simon Cameron-Moore