Chinese government bonds are being adopted for collateral transactions as the market opens up, with both Euroclear and Clearstream supporting international investors.
China’s government bond market measures US$26 trillion in outstanding volume, and is increasingly recognised by the market as a source of high-quality collateral, Euroclear says – with onshore RMB bonds now representing €5 trillion in eligible collateral.
Last week, the People’s Bank of China (PBOC) officially recognised the Global Master Repurchase Agreement (GMRA) for repo transactions, aligning its interbank market bond repo mechanisms with international standards.
READ MORE: China considers alignment with global repo standards
This opens up routes for Chinese government bond movement and gives qualified foreign investors access to the market.
Euroclear is supporting Credit Agricole CIB and the Bank of China in their use of offshore Chinese government bonds as collateral. The bonds will be used as collateral under triparty arrangements for uncleared margin requirements.
Credit Agricole CIB China’s head of global markets division Wendy Zhu commented, “Embrac[ing] multi-currency Chinese sovereign bonds, including CNH-denominated government bonds, as eligible collateral for derivatives margin helps establish a practical model for expanding the international application of Chinese bonds.”
Elsewhere, Clearstream has facilitated the use of offshore Chinese government bonds for initial margin segregation. Crédit Agricole CIB, CITIC Securities Company Limited, and Shanghai Pudong Development Bank (SPDB) took part in the transaction.
Zhang Huizi, head of CITIC Securities International FICC, commented, “The inclusion of offshore Chinese government bonds in internationally eligible collateral is a pivotal step in raising the international recognition of Chinese bonds.
“This not only broadens their application scenarios in the global market but also optimizes the efficiency of asset allocation and margin management. CITIC Securities will continue to facilitate the integration of Chinese assets into the global financial system and advance the internationalization of the Renminbi.”
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