Opportunities for global investors as China further opens its cross-border bond market

I recently had the privilege of attending the Bond Connect Anniversary Summit 2025 in Hong Kong on behalf of MarketAxess. With the theme “Unlocking Value through China’s Resilience”, the summit brought together regulators, investors, and market participants from Mainland China, Hong Kong, Macau and other regions.

In this article, I would like to share my key takeaways on the latest trends and strategic insights on China’s bond market, and the growing role of RMB-denominated assets in global investment portfolios.

Further opening of China’s financial markets

As the world's second-largest bond market, China's financial landscape offers a diverse set of instruments and sophisticated mechanisms, drawing strong interest from overseas investors.

At the Summit, the People’s Bank of China (PBOC) and the Hong Kong Monetary Authority (HKMA) jointly announced a number of major initiatives aimed at further opening China’s financial markets and deepening cross-border connectivity. These include expanding the investor base for Southbound Bond Connect, enhancing offshore repo arrangements, updating collateral and margin requirements, and improving the Swap Connect mechanism. These measures are widely seen as critical steps to strengthen Hong Kong’s role as a global financial hub and to promote the internationalization of the RMB.

The appeal of RMB bonds and their value in global portfolios

RMB bonds are increasingly viewed as a stable and appealing option for global investors, offering diversification benefits alongside competitive total returns and Sharpe ratios. Their low correlation with major global markets, combined with improving market liquidity, has made them increasingly popular among international investors.

The inclusion of RMB bonds in major global indices—such as the Bloomberg Global Aggregate, WGBI, and GBI-EM—has further boosted foreign interest. As new repo arrangements are rolled out and liquidity improves, many investors believe there is more room to optimize performance through effective trading strategies and collateral management. Nevertheless, investors remain mindful of how macroeconomic uncertainties such as global market volatility, geopolitical tensions, and shifts in monetary policy might impact capital flows and investor sentiment.

Hong Kong's unique role in facilitating the RMB ecosystem

Hong Kong continues to serve as a key offshore hub for the RMB market, offering a strong financial infrastructure and a solid regulatory framework. During the summit, several proposals were presented to strengthen Hong Kong's position:

• Boosting primary market issuance of RMB bonds, particularly Dim Sum bonds and Panda bonds, to further internationalize the RMB and establish an offshore RMB yield curve.

• Expanding RMB derivative markets to facilitate capital flows in response to interest rate and exchange rate volatility, thereby creating a more effective price discovery mechanism.

• Launching RMB-denominated gold trading in Hong Kong and developing an RMB-based pricing mechanism.

• Optimizing Bond Connect by broadening access to corporate bonds and extending bond durations, which has already driven higher volumes. There were also proposals to expand the range of collateral to improve market efficiency and reduce transaction costs.

Opportunities and challenges for electronic trading platforms

The continued evolution of Bond Connect places e-trading platforms at the center of China’s bond market transformation. These platforms now play a pivotal role in serving a broader base of global investors, offering tools that support cross-border, multi-currency trading, and incorporating features that align with international best practices.

As a key e-trading partner of Bond Connect, MarketAxess has seen significant growth in both trading volume and client activity on the Northbound channel. As China’s cross-border bond market landscape continues to evolve, ongoing innovation will be crucial to meet the increasingly complex needs of both regional and global market participants.

Recent data shows a steady increase in net foreign inflows into Chinese Government Bonds (CGBs). However, foreign ownership of Local Market (LM) bonds remains relatively low compared to other Asian and global economies, underscoring the untapped potential in China’s expanding cross-border bond market.