RMB IRS Market Gets a Boost from Swap Connect Opening

Swap Connect, the new mutual access programme between Hong Kong and Mainland China’s interbank interest rate swap markets, went live on 15 May with both Tradeweb and Bloomberg reporting RMB IRS trades on the platform, which is a venture involving Hong Kong Exchanges and Clearing (HKEX), China Foreign Exchange Trade System and Shanghai Clearing House.

The initial launch was with a Northbound channel, southbound trading is also due to start this week. On the first day of the programme’s launch, 27 offshore firms traded onshore RMB interest rate swaps with a notional value exceeding RMB 8,259 million.

The firms say by providing enhanced risk management capabilities, Swap Connect will facilitate greater international participation in China’s fixed-income market. This, in turn, will further strengthen Hong Kong’s position as a leading international financial centre, as well as propelling the expansion of the Chinese bond market and the internationalisation of RMB, they add.

On the inaugural day of trading via Swap Connect, more than 20 offshore firms completed trades with onshore dealers on Swap Connect using Bloomberg. These included Bank of China (Hong Kong), Bank of Communications Hong Kong branch, China CITIC Bank International, China Construction Bank (Asia) Corporation, China Construction Bank Corporation Hong Kong branch, China Everbright Bank Hong Kong branch, CICC International, Crédit Agricole Corporate & Investment Bank, Eastfort Asset Management Private, The Hongkong and Shanghai Banking Corporation, Huatai Financial Holdings (Hong Kong), Industrial and Commercial Bank of China (Asia), Industrial Bank Hong Kong, and Standard Chartered Bank (Hong Kong), Bloomberg says.

“With the development of the RMB markets, international investors have demonstrated their increasing interest in RMB assets and bonds and a growing need for risk management tools,” says Xu Haifeng, deputy chief executive of Bank of China (Hong Kong). “Swap Connect marks another milestone in connecting the financial markets between the Chinese mainland and Hong Kong, providing offshore investors access to onshore derivatives markets and satisfying their needs for managing interest rate risks.”

Shawn Yuan, co-chief investment officer of the Dymon Asia Multi-Strategy Investment Fund and chief investment officer of the Dymon Asia China Absolute Return Bond Fund at Dymon Asia Capital, adds, “Direct electronic trading access to Swap Connect on Tradeweb allows us to benefit from improved liquidity and executable size in the onshore CNY IRS market. The availability of allocations, pre-trade data and electronic record keeping helps us prove best execution and enhances operational efficiency. We are proud to be one of the first investors to trade through Swap Connect.”