A CROSS-MARKET platform linking China’s onshore and offshore debt markets could boost offshore yuan liquidity, Hong Kong Exchanges and Clearing Ltd. (HKEx), Hong Kong’s stock exchange operator, said in a report posted on its website Friday.

    Such a “bond connect” would expand an existing program by allowing foreign institutions to use yuan bonds held offshore as collateral in the onshore repo market, helping them raise funds and channelling liquidity from the onshore to offshore market.

    Since 2015, foreign institutions have been allowed to conduct bond repos in the mainland interbank market, but they can only use onshore bonds as collateral.

    Setting up the platform could thus “not only increase the offshore RMB [yuan] liquidity, but also improve the tradability and usability of offshore RMB assets and sustain the stability of the offshore RMB market”, the report said.

    Offshore yuan liquidity has become very tight since the Christmas holiday due to seasonal factors and a shrinking pool of offshore yuan.

    The CNH Hong Kong Interbank Offered Rate benchmark (CNH Hibor), set by the city’s Treasury Markets Association (TMA), was fixed at 61.3 percent Friday for overnight contracts, its highest level in a year.

    The overnight implied deposit rate for offshore yuan even jumped to 112 percent on Friday morning trade.

    But market players have said even a program like that proposed might not improve offshore yuan liquidity as foreign interest in offshore Chinese bonds has dwindled as the yuan’s sharp depreciation in 2016 offsets their relatively high yields.

    (SD-Agencies)