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China debuts Swap Connect program for onshore bond hedging

Foreign access via Hong Kong aims to curb outflows and boost market liquidity

A launch ceremony for Swap Connect was held May 15 in Hong Kong. (Photo by Kensaku Ihara)

HONG KONG/SHANGHAI -- China took another step toward opening its financial markets on Monday, with a new channel that lets foreign investors trade in onshore interest rate swaps via Hong Kong to hedge risks on their bondholdings.

The new Swap Connect program for financial derivatives allows "northbound" trading in yuan-denominated contracts on the mainland, with a daily net cap of 20 billion yuan ($2.87 billion). A "southbound" channel from the mainland to Hong Kong is also being considered. Institutions such as Deutsche Bank serve as market makers.

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