MNI INTERVIEW: HK Offshore RMB Bond Market To Expand

Hong Kong plans to launch yuan-denominated treasury futures this year and expand the tenor and types of yuan bond issuance to strengthen the benchmark yield curve, in moves which should boost liquidity and encourage more global use of the currency, a senior Hong Kong politician told MNI.

The launch of treasury futures will help investors hedge interest-rate risks and lower transaction costs, enabling a more transparent and solid yield curve, said Hon. Ronick Chan Chun-ying, a Hong Kong lawmaker representing the banking sector and representative at the 14th National People’s Congress. 

Chan, an advocate of offshore yuan treasury futures and an advisor to the Bank of China (Hong Kong), said the instruments will enhance liquidity and the attractiveness of the onshore and offshore RMB bond markets and promote the yuan’s emergence as a reserve currency.

Though Hong Kong is the world’s largest offshore yuan hub, most bonds’ maturities are concentrated in the three-to-five-year range, resulting in a lack of reliable benchmarks for pricing medium- to long-term bonds and making it difficult to form a complete and smooth yield curve. As a result, most are held to maturity, with secondary markets largely inactive, Chan noted.

He suggested Hong Kong collaborate with China’s Ministry of Finance and the People’s Bank of China to establish a regular long-term treasury issuance mechanism and increase the supply of bonds with tenors of 10, 15 years and beyond, providing the market with clearer long-term interest-rate signals. (See MNI: China Govt Needs More Debt To Sustain Growth - Advisor）

Chan acknowledged that establishing such a mechanism would be a gradual policy decision requiring Beijing’s support and consultation, but said that given efforts to accelerate yuan internationalisation, he expects authorities to move more quickly toward concrete issuance plans.

In addition to treasuries, RMB bond issuance by large mainland enterprises in Hong Kong is also likely to accelerate, he said. “I expect innovation and technology companies and those with low-carbon or environmentally friendly projects will be further allowed to issue bonds in Hong Kong and attract international capital as pioneers,” Chan said. (See MNI: PBOC To Enhance Tech, Green Fund Raising: Officials）

RMB POOL

Hong Kong’s offshore RMB fund pool has remained at around CNY1 trillion over the past decade, widely seen as limiting the availability of offshore yuan and constraining its internationalisation. The pool is also regulated through mechanisms such as the currency swap line between the PBOC and the Hong Kong Monetary Authority (HKMA), which currently stands at CNY800 billion.

Chan said the pool could expand as global use of the yuan grows and offshore RMB asset markets develop.

The PBOC should provide more flexible quotas for the currency swap arrangement, while the HKMA could raise the quota for the RMB Business Facility from the current CNY200 billion to CNY250 billion and then to CNY300 billion, he argued. 

“I hope the RMB fund pool will achieve double-digit growth annually in Hong Kong over the next five years,” Chan said, adding this would allow Hong Kong’s trade partners, particularly in the Association of Southeast Asian Nations, to access low-cost yuan liquidity and facilitate participation by regional financial institutions in RMB business in the city.