Investors show interest in using onshore Chinese bonds as collateral in repos 

​Global investors showed strong interest in using onshore Chinese bonds as collateral in short-term borrowing agreements in Hong Kong, burnishing the city’s status as an offshore yuan hub.AdvertisementThe new arrangement, which kicked off on Monday, is part of a slate of policy measures unveiled last month by central banks on the mainland and Hong Kong to deepen cross-border financial connectivity. The repurchase-agreement measure had been seen as a “last-mile” reform that would ease capital-flow controls, help foreign investors generate greater returns and manage liquidity.A repo is a short-term borrowing transaction to sell securities and repurchase them later at a slightly higher price. The seller obtains funds at lower rates, while the buyer gains an attractive yield from the collateral, typically in the form of short-term secured and liquid instruments.On Monday, financial institutions including Citic Securities International Capital Management, GF Global Capital and Eastfort Asset Management were among the first investors to complete offshore yuan repo transactions using their onshore Chinese bonds under the northbound Bond Connect scheme, according to Standard Chartered, one of the programme’s 11 market makers in Hong Kong.The programme would help clients “obtain yuan liquidity, effectively revitalise foreign investors’ onshore bond positions, improve capital efficiency, the attractiveness of yuan assets to international investors and further Hong Kong’s leading position as an offshore yuan business centre”, said John Thang, the bank’s head of markets and strategic client management and solutions for Hong Kong, Greater China and North Asia.AdvertisementThang said the bank has received many inquiries from customers, with some expressing interest in taking part.“It is expected that the new repo arrangement will become a financial tool for investors to regularly manage yuan assets,” he said.