In order to deepen the opening of the bond market to the outside world and further facilitate the liquidity management of foreign institutional investors, the People's Bank of China recently issued the "Announcement on Further Supporting Foreign Institutional Investors in Carrying out Bond Repurchase Business in the Inter-bank Bond Market (Draft for Comment)".
In recent years, my country's bond market has continued to deepen its opening to the outside world, and the number and investment scale of foreign institutional investors have continued to grow. Their demand for liquidity management through bond repurchase business is relatively strong.
According to the "Announcement", all foreign institutional investors entering the inter-bank bond market can basically participate in the bond repurchase business, including overseas RMB clearing banks and participating banks, overseas central banks, international financial organizations, sovereign wealth funds, and Newly added various financial institutions such as overseas commercial banks, insurance companies, securities companies, fund management companies, futures companies, trust companies and other asset management institutions, as well as medium and long-term institutional investors such as pension funds and charity funds.
According to industry insiders, the further opening up of inter-bank bond repurchases, mutual promotion and coordinated development with "Bond Connect" and "Swap Connect", is an important milestone in the high-level opening up of my country's financial market and will help meet the increasing needs of overseas institutions. The growing demand for investment and financing, as well as the need for risk hedging management and liquidity management tools, will further enhance the level of RMB internationalization.
Bond repurchase is an important short-term financing tool in domestic and foreign financial markets. It is of great significance in serving the regulation and transmission of monetary policy, broadening financing channels, and promoting interest rate liberalization. In 2021, on the basis of fully drawing on the mainstream repurchase experience in the international market, the multi-bid bond buyout repurchase business will be launched to the market. The pricing mechanism and duration coupon treatment methods will be in line with international standards, further improving the buyout repo business. Ease of financing. Since its development, bond repurchases in the inter-bank market have become the most important money market transaction. In 2023, the annual transaction scale will reach 1,674 trillion yuan, with an average daily transaction volume of approximately 6.7 trillion yuan.
"Bond repurchases in my country's inter-bank market are developing rapidly, transaction types are constantly enriched, and opening up to the outside world is deepening." Chen Li, chief economist of Sichuan Finance Securities, said that the opening up of bond repurchases is an important measure to promote financial institutional opening and will further enrich the market. Foreign capital's trading varieties in the Chinese market improve transaction convenience and meet the liquidity management needs of more overseas investors.
"The tradable varieties and risk hedging tools of foreign institutional investors are constantly enriched, and their demand for the circulation and use of bond assets and the management of RMB liquidity are also becoming stronger." The relevant person in charge of the China Foreign Exchange Trading Center believes that expanding bond repurchases overseas The participating entities not only effectively respond to the transaction needs of overseas institutions, but also help promote the in-depth participation of overseas institutional investors in the Chinese bond market.
“The repurchase format open to the outside world also fully integrates and respects the trading habits of domestic and foreign institutional investors. According to the announcement, bond repurchases carried out by foreign institutional investors adopt the form of collateral transfer. This arrangement is in line with international mainstream repurchase practices. Integration can effectively lower the threshold for participation by overseas entities and help promote institutional openness." said the above-mentioned person in charge of the China Foreign Exchange Trading Center. Experts believe that the long-term improvement of China's economy, the continued opening of the financial industry, and the improvement of investment convenience in the bond market will make China's bond market increasingly attractive to foreign investment and become an important choice for overseas institutions' global allocation. (Economic Daily reporter Ma Chunyang)