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HSBC has finished its first deal via the mainland-Hong Kong bond connect program, which opens on Monday, China Securities Journal website reports.

▲圖／翻攝自中國郵報

The "northbound" bond connect, which allows qualified overseas investors to buy bonds in the mainland inter-bank bond market, either with Chinese yuan or foreign currencies, will be operating on a trial basis, according to the joint statement by the People's Bank of China and Hong Kong Monetary Authority on Sunday.

China approved a bond connect program between the mainland and Hong Kong in mid-May, allowing investors from both sides to trade bonds on each other's inter-bank markets.

Overseas investors should register the bonds they purchase under qualified overseas trusteeship bodies, which have accounts in mainland counterparts, according to rules issued earlier by the PBOC.

Those qualified investors include foreign central banks, sovereign wealth funds, international financial organizations, Qualified Foreign Institutional Investors (QFII), RMB Qualified Foreign Institutional Investors (RQFII), and financial agencies including commercial banks, insurance companies, securities brokerage houses and fund management companies.

They can invest in bonds that are tradable on the mainland inter-bank bond market, including treasury bonds, local-government bonds, policy bank bonds, commercial bank bonds, corporate bonds and asset-backed securities, the PBOC said.

China's inter-bank bond market has been promoting opening-up in recent years. So far, a total of 473 overseas investors have entered the market, with a total investment of more than 800 billion yuan.

However, the share of Chinese domestic bonds held by foreign investors remained low. As of the end of April, among the 44.99 trillion yuan of bond custody under the China Government Securities Depository Trust & Clearing Co Ltd, foreign investors only account for 1.7 percent.

Insiders said that the bond connect will become the primary channel for foreign investors to invest in the domestic bond market in the future.

Although in the short term, it has limited effect on the domestic bond market. Over the medium to long term, as the yuan joined the International Monetary Fund's basket of currencies, named the Special Drawing Rights (SDR), the demand for yuan-denominated bonds is expected to grow, and bring hundreds of billions of dollars to the new fund.