Across The Border | Hong Kong’s struggling debt market puts a damper on hopes for bond connect scheme

A weakened yuan and rising interest rates have dragged yuan-denominated bonds issued in Hong Kong to a record low, raising concerns whether the current environment is appropriate to push ahead with the bond connect programme this year.

Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia said in January that the launch of the bond connect plan, linking the debt markets in Hong Kong and mainland China, would be the next major cross-border trading scheme after the stock links with Shanghai and Shenzhen.

Hong Kong and Shanghai first launched the stock connect scheme in 2014 to allow international investors to trade Shanghai A shares through Hong Kong-based brokers while mainlanders can trade Hong Kong stocks through mainland stockbrokers. A similar scheme between Hong Kong and Shenzhen was launched in December 2016.

Premier Li Keqiang last month pledged to set up a bond connect scheme between Hong Kong and the mainland this year in a bid to allow overseas capital to access the mainland’s debt market.

The high-level endorsement shows the bond link was inching closer to an official launch, yet a reassessment might be in order, given the shifting market conditions.

Issuance of Hong Kong dollar-denominated bonds fell 56 per cent year on year in the first quarter to US$3.83 billion, reflecting the worst first quarter since 2014.