ROUNDTABLE Bond Connect: the gates have opened
Bond Connect has only been around for a year, but the impact of its revolutionary approach to China market access is already widely felt. There have certainly been teething problems, but for investors around the globe, the scheme has finally unlocked an opportunity to invest in China’s $11tr bond market. GlobalRMB sat down with leading players in the market to discuss Bond Connect’s unfolding story.
Hayden Briscoe, head of fixed income, APAC, UBS Asset Management (HB)
Cindy Chen, head of securities services, Hong Kong, Citi (CC)
Julien Martin, head of fixed income and currency, Hong Kong Exchanges and Clearing (HKEX) (JM)
Tony Shaw, head of institutional sales, HSBC (TS)
Moderator: Paolo Danese, editor, GlobalRMB
How would you grade the first year of Bond Connect?
JM: I think Bond Connect has completely changed the game. In the process of opening up the Chinese fixed income market, access was coordinated by a few banks selling their agent model to global buy-side investors. There was no real traction behind China access. I think Bond Connect changed that entirely.
Three elements are critical there. Looking at the statistics, from the launch in July last year, the holdings of foreign investors in China were around the $120bn mark. Since the launch, we almost doubled that. A lot of these flows are through Bond Connect. But the scheme not only allowed a lot of new investors to go into China, it has also helped the other channel, the direct agency access model [typically known as the China interbank bond market direct access scheme, or CIBM Direct] to grow. Before, you barely had 400 investors, mostly central banks. Bond Connect has really changed that.
The second thing it changed is that it made index inclusions by Bloomberg Barclays possible. If you look at the conditions in the announcement, the conditions are all linked to Bond Connect – allocations, DVP (delivery versus payment) and tax clarifications for Bond Connect. There is nothing clearer than that. Without Bond Connect, the index inclusion was not possible.
The third element is that it has been a catalyst for communication by a whole new group of players. I am talking of global custodians and Chinese firms that did not have a role in the initial agency model, they were too small to reach the international community, with Bond Connect they have a role to play. The global custodians come back into the game with Bond Connect as well as Stock Connect. The success of the increased access by US and Japanese investors, these are things that can almost only be attributed to Bond Connect. In terms of the stats, you had a completely dead encephalogram before Bond Connect, now investments have doubled.
TS: As of June 2018, we have been seeing a substantial increase in users of Bond Connect. The mix of offshore investors coming to the market, from commercial banks, securities houses and institutional investors, is promising and a healthy sign of the effective infrastructure Bond Connect provides. There is a continued reliance on Hong Kong as a domicile of those investors – indeed, based on public information around 59% of the investor landscape is domiciled in Hong Kong SAR. However, the diversity of investors is growing and now stands beyond 12 jurisdictions. That is an encouraging takeaway for this year.
CC: Bond Connect was discussed since Stock Connect launched in 2014, but most people then did not understand the implications of mutual market access. After a few years, and with Shenzhen added to the Stock Connect scheme, we have seen that this has enabled the inclusion of A-shares in MSCI.
It was a no-brainer to build on the success of Stock Connect for other asset classes. For the bond channel, we anticipate it will add significant value in allowing China bonds’ inclusion in major indices. China started to open up in 2010 and 2011 with an offshore RMB market and the RQFII [RMB qualified foreign institutional investor] programme, while Bond Connect was only launched last year. So while it is not the first time the China bond market opens, Bond Connect already represents 40% of access flows to the entire bond market, in terms of the number of foreign institutional investors. It is the most scalable way for foreigners to get into China as an alternative to the existing channels, which take much longer.
In March, we had the Bloomberg Barclays announcement that they intend to include Chinese government and policy bonds in the Bloomberg Barclays Global Aggregate Bond Index, starting in April 2019. They are taking the same approach as MSCI, baby steps, as these securities will be phased in over a 20-month period. The first step is the most difficult one, but once that is taken, when you want to ramp up the weight it is very easy because the investors are all operationally ready.
HB: We have always looked at Bond Connect as a parallel scheme to China direct interbank access. I believe we need to have both. The main reason for that is that we have some clients with a custodian not necessarily in the region. Others may only need Bond Connect as the portal since it is the one with the faster roll-out. Also, the scheme moves us straight into the 21st century with the electronic trading platform making it easier to push the trades through. With CIBM Direct, you still have people picking up the phone and dealing directly rather than through trade portals. We need both channels to deal with very different types of clients. Having the flexibility is key to managing different sizes of mandates.
Generally, I think Bond Connect exceeded expectations, and I feel the same way for CIBM Direct access. We see an ever-increasing demand to get access through both channels. We have been investing onshore for some time, and we are now in the process of getting every global fund we have ready for the [Bloomberg Barclays] index inclusions next year. That is a huge project in itself. That structurally guarantees volumes will pick up with the index inclusions. For the MSCI emerging markets index inclusion we have already had to set that up, but that is a relatively small allocation. For bonds, it would be a huge structural flow.
Is the asset management industry prepared for these flows?
HB: I think our competitors that don’t have a presence here will be in for a shock. The bond market will be doubling in size over the next five years, and our competitors are very under-resourced in what will be quickly the second-largest bond market in the world. That is a competitive advantage that we have. The question is one of commitment from the highest level that the region is important to the overall strategy. From our perspective having [CEO] Sergio Ermotti committing UBS Group as a whole is hugely important, and it cascades into the asset management division. There are very few organisations that have made this kind of commitment to the region.
Where you will end up going is that you need a standalone China capability just like you have a US or European bond standalone capability. We expect to see cash funds, government bond funds, Chinese aggregate funds along with those component parts blended in Chinese multi-asset strategies. In fact, in terms of flows we see on the wholesale channel, we have seen huge flows coming into our Chinese multi-asset solution, which is standalone, blending debt and equities. This is the future for portfolio construction. Most competitors see China as one of many countries blended up in global or EM indices, but we think assets from the second- and third-largest market for equities and bonds, respectively, will warrant a place in everybody’s portfolio on a standalone basis.
Did the launch of Bond Connect signal a change in attitude from the Chinese regulators in terms of market access philosophy?
JM: The PBoC has been the driver behind the change; from the top to the working level they have been incredibly helpful and adaptable. Every time we are onboarding new people from new jurisdictions we spend a lot of time with the PBoC to explain, for example, how Korean asset managers operate using the Korean depository, or how the Japanese fund industry operates, how the USA pension funds mandate different asset managers when managing their funds.
The previous model relied on commercial banks to get things going, where everything happened within the China infrastructure, choosing a local bank as an agent, and so on. Until the time when, after trying for years and years, things were not happening for fixed income, but they were happening on the equity side, thanks to Stock Connect. So there was a willingness to get something like that going. And the only way was to set up translation tools that allowed investors to stay with their global custodian and trading model while promoting Chinese financial institutions as counterparties for this model.
Now we are seeing the results in terms of constant inflows and the index inclusions. But to get there, the market had to give up on the purely local access model and let it happen through Hong Kong. This model is a good mix between what global investors are used to doing and what they want to access any market. At the same time, it is something that is still very secure.
Any other KPIs you look at to judge the success of Bond Connect?
JM: We are looking at the number of accounts opened. You had 484 opened up in the China interbank bond market (CIBM). That includes QFII, RQFII, and the Direct model. Now, CIBM Direct and Bond Connect account for close to 1,000 accounts. A third is with Bond Connect, 335 today. We are making major progress, and within the next six months, Bond Connect will probably represent half of the accounts. When index inclusion happens, I believe it will represent two-thirds of accounts.
That level of 1,000 accounts, that is where the equity access was two years ago; now on Stock Connect there are 5,000 accounts. We believe the overall growth pattern has been very exciting, but we are only starting. Some global asset managers will need to have 150 accounts each, so we are only scratching the surface. Bond Connect is the only channel that truly offers best execution for asset owners and asset managers with multiple accounts. The whole game is really going to start in the second half of this year.
We are also looking at the holdings – how much people are investing, volumes of trading and the overall holdings versus the size of the market. Offshore holdings were 1%, now they are over 2%. For trading volumes, we are now closer to 2.5%-3% if you include both Bond Connect and the agent model.
Cindy, as a service provider, how did you prepare yourself for Bond Connect launch? Has that investment paid off?
CC: Our business here in Hong Kong is about understanding the key market changes. Show that we understand how the market evolves, what the changes are and the opportunities it presents. So the investment is minor and incremental in terms of the channel. You are creating a passport, if you had equities, then bonds are just an additional asset class on the framework that we have built.
The plan is that if today an investor can trade Hong Kong stocks and bonds, tomorrow they can use the same account for the Connect, not a new account, with the same settlement and exchange services they already use. It should be as easy as that, and we want to make it simple. This way they do not need to have what I call a “PhD in China” to trade. They should be able to use the same service providers in Hong Kong, where they have established commercial relationships and common law contracts, to access China.
We are already a full-service provider for onshore and offshore RMB markets. We had access to the CFETS [China Foreign Exchange Trading System] to help corporate clients access liquidity for trade flow liquidity needs. Now an extension of that is to institutional investors to use onshore RMB (CNY) for Bond Connect investment. We have a good platform and connectivity already, adding an additional service to a different type of client is a small effort.
We see the benefit of this channel providing the ability for Hong Kong banks to extend services to international clients and allow them to transact in a way they are familiar with. Otherwise, it can be quite difficult if they don’t speak Mandarin and do not understand PRC law. In Hong Kong everything is bilingual, the registration form is bilingual and we have translation services available. If you go with the direct channels, then everything is in Chinese.
What types of investors have been most active in using Bond Connect so far?
TS: Most of the investors in the early days were QFII or RQFII scheme investors, and they were all of a certain scale. Bond Connect provides an entry for those that did not fit those requirements of scale or were not ready to commit the necessary resources to qualify for CIBM access. It was natural for us to create new solutions based on each customer’s maturity in terms of China investment programmes, as well as based on the scale of their programmes. We saw larger clients going via the traditional routes, while smaller ones with concerns around DVP, block trade or apprehensions around investment landscape at the time moved to Bond Connect so they could test the market in a more measured manner.
We expect to continue to see new and smaller investors into China continue to adopt Bond Connect, especially once rules around withholding tax and VAT are clarified.
JM: There have been two types of investors that have already come to this market. One that is looking at the index inclusion, the index-driven investors, some have registered or are in the process of registering. Some are already trading PFBs [policy bank bonds] and CGBs [Chinese government bonds], so those holdings have grown substantially over the last year. Some have registered but haven’t even started trading as they are waiting for the clarifications on the tax and DVP issues.
A second group that has taken advantage of the trading opportunity are those trading more advanced products, which are cleared and traded in the Shanghai Clearing House, the credit part of the China market. This segment is 45% of the China bond market. There you have the short-term NCDs [negotiable certificates of deposits], credit paper, ABS [asset-backed securities], RMBS [residential mortgage-backed securities] structures. This is where we have seen the biggest traction.
You also had MiFID II [Markets in Financial Instruments Directive] implementation in Europe, which meant few investors would have done anything before January 2018, and the MSCI inclusion in June, which meant global custodians were running behind that. When you talk to them, you realise they just finished the work on Stock Connect and are now moving on to Bond Connect. That is why I am hopeful, but it is still crucial to get DVP and tax issues clarified.
The second part of the client base, these are the more tactical guys, the credit investors, the regional asset managers in Asia and the private banks and hedge funds. Those people we have already on-boarded, the process for them is already DVP when they trade this kind of shorter-term paper.
CC: Under QFII and RQFII, hedge funds did not qualify, and they were not able to access China until recently when Bond Connect was made available. Now among the 300 Bond Connect investors, you can see some large hedge fund names.
We also see existing QFIIs and RQFIIs as early users of Stock Connect and for Bond Connect. They are already familiar with China, they did their due diligence and understand how China works. So, the Connect is a small, incremental effort for them. These sophisticated users want to use every channel available for different purposes. For Bond Connect, the advantage for investors is that the cash is in Hong Kong. The money sits with Hong Kong banks. When you sell those bonds, the money has nowhere to go except to your bank in Hong Kong. That provides a lot of comfort for many investors because when investing in China onshore, they are worried about the ability to move the money out. This way you can limit the cross-border risk.
On the tax side, it is more simplified since there is no withholding tax on cash deposit interest. It is an advantage of the Connect channel, it delivers the best of both worlds. The banks in Mainland China are subject to onshore China law and regulations. For example, they cannot extend credit to foreign investors such as QFIIs and RQFIIs. In Hong Kong, similar to other open markets such as the US, Japan or the UK, there are no capital controls, so banks can lend up to their credit appetite. If the client doesn’t have sufficient cash in the right currency, account or market at the time they want to trade to react more quickly to market news, the banks could step in to bridge the gap. That is again a key benefit of Connect, there is no need to pre-fund, unlike for QFII and RQFII where you need to have funds in China before placing an order with a broker to trade.
Julien, will DVP be solved in August as promised by PBoC on July 3?
JM: I think we are coming close to the resolution on this. DVP is very much in final discussion between Chinabond and PBoC for implementation. We have high expectations that an official announcement will be coming out soon. The majority of investors have told us they expect those clarified by September or October at the latest. If it is not done by then, there will be pressure on PBoC and Bloomberg Barclays to potentially postpone the index inclusion, which would look pretty bad for both China and index providers. If these issues are clarified by the summer, everyone will be in good shape and ready for index inclusion next year.
If that happens, what then in terms of the index inclusion timeline?
HB: It is pretty explicit now. Chinese bonds will be going in April next year into the Bloomberg Barclays Global Aggregate Index with a phased-in approach. It will be a 6% allocation. In the next couple of months, we are expecting Citi and JP Morgan and FTSE Russell to announce their inclusion dates. They all said China is going into the indexes. Some have already made moves to set up sub-indices that people can start tracking, but now we are waiting for those official dates. Bloomberg Barclays’ is one of the big indices that is tracked globally, so you have to be ready by April next year. Particularly the passive money, the ETFs that are tracking the index, those have to be ready by then. Smaller countries with underdeveloped bond markets get included on a 0.5% basis, but this is a 6% allocation, that is huge in the context of an index on a standalone country basis.
We think the index inclusion of Chinese bonds is the largest change in capital markets in anybody’s lifetime. Because if we take sovereign wealth funds and central banks in the index inclusion and we roughly assume somewhere between a 6% to 7% allocation, we think that is a $3tr inflow just to get to index weight. We generally hear from direct discussions with central banks that they see a 5% to a 25% allocation to Chinese bonds. Sovereign wealth funds are indicating somewhere around the index levels. When you add all that up, we are more worried about the inflow and how that is handled, while the street is more worried about the outflows coming from China.
Tony, what could these index inclusions mean for the Chinese bond market?
TS: I expect that index inclusions and further liberalisations will certainly promote greater participation, greater awareness of the Chinese bond market and lead to further demand for more investment products, including credit products such as high yield and investment grade instruments, to have more credit differentiation than currently provided. Structured finance will be opened, as announced there is the potential to allow foreign investors in the futures market, and allowing them potentially to go into distressed assets. These are natural developments that come with liberalisations and index inclusion. On China’s side, they will need to be further aligned with global practices, including default workout procedures, bondholder rights and the fair treatment of onshore versus offshore investors. These things will help the market to continue to mature. But given the scale of the market, there is a chance that China may have a new set of rules that reference the international model but are uniquely China as well.
Will Bond Connect become the dominant scheme for China access? Will QFII and RQFII still have a role to play?
JM: My view is very clear, Bond Connect and the CIBM agent model will be thriving in the new infrastructure. Both channels will accommodate the needs of the multitude of investors that need access. When you look at the regulatory side, PBoC is taking Bond Connect and applying it to the agent model. There won’t be a massive takeover from Bond Connect on the other, these two are like brothers, they are the children of the PBoC and the PBoC wants them both to work well. Some investors will decide to go onshore and open accounts, and some want to rely entirely on the agency model to access. Some will prefer to execute their trades in competition with best execution, through an electronic system and using the global custodian model, thus they will choose Bond Connect. I do think Bond Connect will eventually prevail.
These two channels will be there for the very long run, this is probably the end game for accessing China. The application process can be simplified, the application time will be reduced altogether, and the trading protocol will be improved. The questions will be whether you want to have your money onshore or offshore, and principal access or agency access.
QFII and RQFII will have a niche role. There is a part of the market that is not accessible through the other models, like listed bonds or stocks that are not on Stock Connect. If you are playing these niches, then you need QFII until these niches are available through the Connect model, then it will be time to stop.
HB: I would not be negative on QFII and RQFII. Looking back to when the market started to open up, having some control and working out the rules slowly has generally been positive.
If you look at what many IMF papers have said, if you just open and allow the money to come in quickly, it has been quite a disaster and can have a huge impact on the domestic market. I look at that, and how China has behaved, and it is quite sensible to have quotas, it has allowed markets to evolve. And for Bond Connect they have dropped all the quotas. In fact, we are launching and have launched new strategies without quotas attached, and we have retired those strategies with quotas attached because we don’t want to be boxed in. We go directly to Bond Connect or CIBM Direct as our methods now, which means we have free access in and out.
Going forward what we are really talking about here is what dealing protocol suits your internal infrastructure. The interbank is really for those that have a big infrastructure platform within the region in this time zone and onshore.
How crucial was allowing
JM: It was essential since the bond index inclusion is done in CNY. For MSCI it was done in CNH. For bond investors looking at the China market, they have no choice but to invest in CNY and eventually their whole exposure will be in CNY. So if you don’t have the ability to invest and hedge in CNY offshore, you don’t really have access as you are carrying too much basis risk, and when you invest in fixed income, you are very cost sensitive to FX and basis risk.
It was also essential for the Hong Kong monetary system to remove the risk of drying up the CNH liquidity. Fixed income investors are bigger than equity ones, and China’s fixed income market is already a third bigger than China’s equity market, and it will get much bigger.
If we rely entirely on CNH, it carries risk, and second, it could potentially create a liquidity squeeze in Hong Kong. That said there is still a lot of work we can do to make the execution more efficient, increase competition, and to have the same quality in bond execution as for FX. For bond trading, you can do it on a platform, and you can have competition. This is an optimal model to get the best price for your investors. In FX we eventually need to move to the same kind of model where we can trade the CNY offshore on a platform, and it will give the best and most competitive model for global investors to trade CNY.
HB: In March, we launched the first Luxembourg-domiciled, Chinese fixed income fund in the world that was denominated in CNY. All of the funds you typically run offshore are in terms of the Luxembourg regulator, and until they recognised the CNY, there was no way to take these global investors onshore because the regulator didn’t recognise the currency. So that was a landmark change for me as well. Denominating the fund in CNY is particularly important. You were allowed to trade CNY, but there had never been a fund denominated in CNY in the Luxembourg space. You traded CNY as an NDF [non-deliverable forward] or in CNH. In Bond Connect world, you trade CNY directly, but you never had your fund in CNY, which introduced basis risk for your fund.
So it was advantageous to have CNY around Bond Connect, but the rules have also changed within the interbank market. Now the Chinese banks are allowed to trade CNY offshore for CIBM Direct investors. The only key concern that needs to get worked out for those using CIBM Direct is the ISDA agreement. There is an onshore ISDA agreement, but it is a NAFMII standard and not the ISDA global standard. So Bond Connect still has the advantage there.
How urgent is the need for more electronic trading platforms?
CC: Bloomberg is being discussed as an additional trading platform, for
That’s also because Tradeweb charges based on the nominal value of the bonds traded on the platform, while Bloomberg only charges the terminal fee, and is not expected to impose additional fees. In certain markets like Korea, investors prefer Bloomberg. They are waiting to come online on Bond Connect.
JM: At the end of the day, as an infrastructure provider for Bond Connect model, we have always talked about open architecture. We will be bringing in new platforms hopefully soon. We want this access to China, as long as the model is about best execution RFQ [request for quotes], then electronic execution is the future. Clearly, the more platforms we have, the more foreign investors can do. It is important to understand Bond Connect is different from Stock Connect in so far as it is not just a Hong Kong-centric model. It is global access. The trading platforms are global players. The trading protocols are global. The custodians are also global. This is not a Hong Kong Bond Connect, this is a global China Bond Connect.
Julien, what other products can we expect to become tradable on Bond Connect?
JM: The wish list is pretty simple. Investors can already access primary and secondary markets, and now we are talking about anything related to liquidity management and hedging. Making repos and derivatives available cross-border is the top priority for us, and the plan has also been announced by the PBoC on July 3. Hopefully, we can get there quite quickly, but we still need a little bit of development.
And with repo, the devil is in the details. Repo has been enabled onshore for some foreign investors for a while, but it was not tradable – there was no way to really trade it. We want to be able to launch the product in the right
On the FX derivatives side, we have everything available through CNY and CNH. But investors also need ways to manage risk and durations. Bond forwards, interest rate swaps, these are not very complicated to execute through the same model as FX derivatives. But to manage duration, if you have a big portfolio, the OTC market is not sufficient. So we are very hopeful to see more bond futures and other exchange-traded tools that are essential for bond portfolio managers to manage risk.
On bond futures, we have no timeline. We were hoping to see something this year and possibly next year. The sooner the better since everybody wants these products. Not just us but the whole buyside industry, this is necessary for the fixed income ecosystem.
Cindy, any other tweaks the market would welcome?
CC: Bond Connect only allows CIBM access, that market is $10tr and growing quickly, but it is not the whole market. We also have convertible and listed bonds that are on the exchanges. The question is will Bond Connect eventually add on listed bonds. Eventually, I’d say yes, the Connect is meant to be a multi-asset platform. It should not be too difficult to add listed bonds to the eligible securities. It will probably look more like the Stock Connect than CIBM Direct, as the latter is for the OTC market.
A key pain point for trading in CIBM securities is the lack of a block trading facility. China is an ID market; if I manage 200 funds, I have to put through 200 orders one by one. Fund managers
What about a southbound channel for Bond Connect?
JM: Southbound is on the table and has been discussed, as echoed in the PBoC announcement on July 3. There is a strong willingness from the Hong Kong government and regulators to have a role to play in southbound. Hong Kong sees southbound as a unique opportunity to assist the Mainland in managing outbound flows, but there is also a Hong Kong Inc perspective to build up a stronger fixed income market here. I have southbound discussions a lot, and if the interests align themselves, we will see something coming faster. It will also help to balance the flows of capital and answer the needs of some Chinese investors that don’t have offshore entities to invest offshore. But we also have to be mindful that the China market is a high-yielding, low-default market, and very liquid for onshore investors. For many, to go offshore is mostly about diversification, in terms of currency and yields.
CC: Bond Connect is part of the Mutual Market Access, but we don’t have the southbound yet. I expect some form of southbound to be in the picture in the next 12 to 18 months. In terms of eligible securities, it would be Hong Kong securities. But is that enough? It will not be enough from the market’s point of view. The big question is what else other than Hong Kong bonds should southbound give access to. The Belt and Road Initiative is something that can be of interest and fits with China’s strategy. US bonds and treasuries are where there is
What will China access look like a few years down the line?
HB: Global central banks are still being forced to deal with the PBoC [to purchase onshore bonds]. That could be a big structural change if they get more flexibility to deal via the other channels either in interbank or through Bond Connect. That would be a real boost to flow that we are not seeing go directly through the banking network or broker community.
TS: We expect the China market to continue streamlining, automating and standardising its systems on an ongoing basis in the future. We could well see China lead via digitisation, leading to greater transparency, lower execution cost and ease of settlement, which would by default lead to smooth, efficient price discovery and post-trade workflows. Our outlook remains very positive. If it can go hand in hand with a better understanding regarding bondholder rights, default workout procedures, and greater comfort on underlying credit and a move down the corporate curve, then we have ourselves an ever more developed market.
Tony, what does that shift mean for HSBC’s strategy in China?
TS: We have every intention to be the largest foreign research house operating in China with the Qianhai HSBC joint venture, the first majority foreign-owned securities company in China. We are expecting to cover approximately 400 names in equities and a number of domestic corporate credit names as well. As global investors get comfortable with the level of micro and macro China research provided to them, we expect that will go hand in hand with our increased offering as an originator and a financier onshore.
Then there are the digital aspects. The bank has a very bold programme looking at digital solutions for foreign customers going to China and Chinese customers going abroad via QDII [qualified domestic institutional investor]. That will require continued integration and development.
And to conclude, what does Bond Connect investors’ focus on investing in domestic short-term papers say about the outlook for the Chinese bond market?
HB: The only reason that’s really popular at the moment is that the yield curve is so flat from a historical perspective. You buy CDs at 3.85% you are out-yielding 10-year CGB at 3.60%, so there is
The end game is that we will end up with three big portfolios. One is euro-, Swiss franc- and sterling-denominated, allocated to equity and debt from a regional perspective. Then you end up with an RMB portfolio in
Then you end up with a third portfolio which is dollar-denominated and includes Canada and Latin America. That is the long-term picture, but the important thing is people start breaking down the EM connotation which really does not make a lot of sense. Most of Asia should be in the developed market category already, and they have much better debt metrics compared to Europe and Japan anyway. In terms of China access, it will be the same approach as now but more electronic platforms and access portals to deal onshore.
TS: The types of purchases have been well publicised, and that doesn’t change from bank to bank. We see across the market a flattening of the yield curve, including onshore. As a function of that, we are seeing an extension in duration for the players based on their natural needs. The overall temperature for the onshore bond markets remains relatively healthy, despite a recent weakening in the currency. The total return on the repriced assets is starting to attract a lot of inflows. We are not seeing movement down the credit curve yet, but that will happen over time. With greater participation and a demand for more yield, that yield will come with greater understanding of underlying credits. With that, we will see investors grow comfortable with corporate structures and particular names. As these investors do more specific analysis, we will see more comfort going down the credit curve.
Overall, the bonds are performing very well. The Chinese interest rate outlook remains on a different trend to that of US and global developed markets. As a result, the inflows will continue.