China is set to expand its Swap Connect program, which links the mainland and Hong Kong interbank derivatives markets, by introducing new products. This expansion aims to accommodate a growing appetite for yuan-denominated debt and the subsequent demand for hedging. Monthly trading volumes through Swap Connect are projected to reach approximately 1 trillion yuan (about $147 billion), according to estimates from BNP Paribas Securities (China) and Australia & New Zealand Banking Group Ltd. This anticipated surge reflects a broader trend of international investors increasing their exposure to onshore Chinese bonds.
The Swap Connect program has already seen substantial growth since its inception in May 2023. As of June 2026, cumulative notional volumes have surpassed RMB13 trillion, with monthly clearing volumes hitting a record RMB820.8 billion in March 2026. The number of offshore participants has also expanded significantly, from 22 to 98 investors from 19 jurisdictions, supported by 23 People's Bank of China (PBOC)-approved onshore dealers. This growth is driven by shifts in interest rate expectations, increasing hedging needs from growing bond allocations, and the program's recognition as efficient cross-border infrastructure.
Key enhancements to the Swap Connect include the planned addition of FDR007 as an eligible reference rate for RMB interest rate swaps in the fourth quarter of 2026, which will broaden hedging tools for international investors. The program already offers access to fixed-for-floating interest rate swaps referenced to several onshore RMB benchmark rates, including 7-day repo, SHIBOR 3-month, SHIBOR Overnight, and the 1-year Loan Prime Rate. The maximum tenor for swaps referencing 7-day Repo and SHIBOR 3-month was extended to 30 years in May 2025 to support long-duration hedging strategies. Despite the expanding product menu, market activity remains concentrated in core tenors, with 1-year and 5-year FR007 swaps being the most liquid maturities. Swap Connect has become a crucial part of the RMB market infrastructure, accounting for 13% of the onshore interest rate swap market in Q1 2026. Efforts are also underway to introduce International Monetary Market (IMM) contracts and trade unwinding solutions, such as backdated trades and compression services, to address feedback from offshore investors and further enhance flexibility.
