“Hong Kong’s unique links to mainland China’s financial markets continue to widen and deepen,” said Monish Tahilramani, head of markets and securities services Asia-Pacific at HSBC.

“By expanding access channels to cover derivatives, Swap Connect will support international investors to better manage their exposure to fluctuations in interest rates and enrich risk-management tools for RMB-denominated fixed-income assets,” added Tahilramani.

HSBC, Standard Chartered raise lending rates after Fed, HKMA tighten policy

HSBC will take part in the northbound trading of Swap Connect “as an important complement to Bond Connect and a positive sign that onshore markets continue to open up”, said Tahilramani.

The statement came after the HKMA on Thursday raised its key interest rate by a quarter point to a 15-year high, in what could be the last hike in 2023.

The Swap Connect can create “synergies with Bond Connect” and cement Hong Kong’s “role as a super-connector”, said John Thang, head of financial markets, Hong Kong and Greater Bay Area at Standard Chartered.

The programme will help all global investors to manage interest rate risks for their bond investments in mainland China, enhancing the attractiveness of RMB-denominated assets as part of their portfolios and furthering the internationalisation of the yuan, said Thang.

Also, the participation by offshore investors will help further develop the derivatives market, enhance the risk-based pricing mechanism, and stimulate the growth of the bond market in mainland China, said Thang.

Bank of China (Hong Kong) said it will act as a Hong Kong investor to access the Chinese mainland’s interbank interest rate market under Swap Connect, according to a Friday statement.

BOCHK will also offer client clearing services and foreign exchange services for Hong Kong and international investors.

“As global investors participate in China’s financial markets through various channels, they have been anticipating the availability of more investment instruments to hedge risk and diversify portfolios,” said Bing Li, head of Bloomberg APAC.

“Swap Connect promises to be a win for financial market participants inside and outside China,” added Li. “The wider array of derivatives available to investors via Swap Connect will stimulate increased foreign participation in Chinese markets while creating important opportunities for onshore market makers.”

Hong Kong has not suffered capital outflows during US rate rise cycle: HKMA

The move will support a further opening of China’s domestic bond market, according to a Goldman Sachs report this week. “Looking further ahead, a potential introduction of an offshore mainland government bond futures market in the coming years could further enhance the risk-hedging capacity of foreign investors.”

The mechanism was then expected to debut at the end of 2022 at the earliest, with interest rate swaps for users to exchange one stream of future interest payments for another.

At the initial stage the daily trading quota is set at 20 billion yuan. Subsequently, the quota amount may be adjusted, according to the HKMA’s statement.