Bond disconnect: trading link has missing pieces

China and Hong Kong need to get their act together if Bond Connect is going to buck a run of disappointing trading links. Investors need to be able to hedge interest rate risk onshore.

As Bond Connect, a mutual market access scheme between mainland China and Hong Kong, goes live on Monday investors may hesitate to make the crossing given the absense of key tools such as interest rate hedging.

Much is at stake for Hong Kong and China. They are offering global investors faster and cheaper access to a bond market that is the world’s third largest bond, behind only the US and Japan, with about $9 trillion worth of bonds outstanding.

Only roughly 300 large institutional investors, mostly central banks and sovereign wealth funds, have qualified to access China’s interbank bond market. They have to file an investment...

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