China is exploring an expansion of its Hong Kong-linked derivatives channel so overseas investors could access two standardized onshore interest rate tools. People familiar with the talks say the China Foreign Exchange Trade System and Shanghai Clearing House are collaborating with OTC Clearing Hong Kong Ltd. to add Standard Interest Rate Swaps and Standard Bond Forwards to Swap Connect by 2028, with discussions taking place under the central bank's guidance.
It fits a broader push to make the world's second largest debt market easier for global capital to navigate, to advance the yuan's international use, and to underscore Hong Kong's standing as the primary offshore base for RMB. The two standardized products have gained traction lately because they settle more cleanly and let users fine tune rate hedges.
Interest rate swaps let investors exchange fixed payments for floating ones to manage exposure to rate moves. Unlike custom OTC swaps, standardized IRS use fixed conventions for core parameters such as which rate is referenced, how long the contract runs, and the length of each interest period. In China's onshore market, these standardized IRS reference the rate at which banks issue negotiable certificates of deposit.
The standardized bond forward contracts are anchored to liquid notes from the policy lenders, specifically those sold by China Development Bank and Agricultural Development Bank of China. Both standardized instruments use a centralized, anonymous price bidding setup that tends to concentrate liquidity. They also clear through a central counterparty rather than relying on bilateral settlement agreements.
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Swap Connect, introduced in 2023, gives global investors a channel to hedge interest rate swings against their holdings in China's local bond market. For now, trading runs on bilateral price quotes where counterparties are known in advance and firms must have credit risk management agreements in place before they trade.
Activity is building. According to Shanghai Clearing House, clearing through the Hong Kong channel reached 1.7 trillion yuan during the second quarter, an increase of nearly 48% versus the prior year, or about $253 billion. Onshore, conventional OTC-cleared IRS continue to account for most activity, with a 36% year-on-year increase bringing volumes to 44 trillion yuan in 2025; meanwhile, the standardized pair also grew, rising 2.3x to 13.8 trillion yuan.
The People's Bank of China and CFETS did not immediately respond to requests for comment, and Shanghai Clearing House declined to comment. In a written response, Hong Kong Exchange said: "HKEX remains committed to working closely with regulators and market infrastructure partners to continuously enhance Swap Connect, support its sustainable long-term development and further strengthen Hong Kong's role in advancing RMB internationalization."
If standardized IRS and bond forwards are ultimately added to Swap Connect, global investors could get a simpler way to manage onshore rate risk using tools that already attract strong local liquidity. For everyday savers, more seamless hedging in yuan markets can ripple into borrowing costs, fund flows, and how global portfolios measure interest rate risk over time.
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