(Yicai Global) July 4 -- Northbound trading of the Chinese mainland-Hong Kong bond connect reached CNY972.9 billion (USD134.6 billion) in May, the most since the program allowing foreign investors to trade Chinese mainland bonds was launched in July 2017.

Average daily turnover soared to a record CNY46.3 billion (USD6.4 billion), according to the Hong Kong Stock Exchange. No specific flow data was released.

The northbound leg had a net outflow of almost CNY500 billion last year because of geopolitics and the relatively wide interest rate gap between China and the United States, HKEX data showed.

The period of offshore capital inflow has temporarily halted, as China becomes a 'rate lowland' amid aggressive rate hiking by central banks overseas, according to experts, who note that it will be hard to reverse the trend back to net inflows.

But according to the China Interbank Bond Market Direct, another route for international investors to access the country’s onshore bond market, the situation has already begun to stabilize.

Offshore institutional investors increased their holdings of China mainland bonds through the CIBM Direct by about CNY20 billion in May, resuming a net inflow for the first time since March, data from the Shanghai office of the People's Bank of China showed on June 15.

Chinese government bonds will see an inflow of about USD10 billion per quarter until the fourth quarter of next year, UK banking group Barclays has predicted.

In addition to the northbound route of the bond connect, it also has a southbound counterpart. Launched in 2021, it enables mainland investors to access Hong Kong’s bond market.

As the southbound leg is becoming more and more popular, China should expand the range of products included in the bond connect program to further promote it, Freddy Wong, head of Asia Pacific at Invesco Fixed Income, told Yicai Global.

“Bond futures, particularly treasury bond futures that have the higher liquidity, and buy-back deals should be included into the scope of cross-border transactions to help onshore and offshore investors manage portfolios' risks more effectively and with richer tools," Wong noted. 

But the derivatives market needs further development before it can be opened, Wang Dahai, president of Bloomberg China, told Yicai Global.

Editors: Xu Wei, Futura Costaglione