The mainland's central bank on Tuesday announced that global investors will be given more choice of collateral for trading government bonds.

The People's Bank of China (PBOC) will allow offshore investors to use onshore bonds under Northbound Bond Connect as margin collateral for Northbound Swap Connect transactions.

The bonds are limited to those issued by the Ministry of Finance and mainland policy banks.

Speaking at a ceremony marking the seventh anniversary of the launch of Bond Connect, Jiang Huifen from the PBOC said the new move will reduce the cost for overseas investors to trade mainland bonds.

"This is going to help further expand the application of renminbi bonds as eligible offshore collateral. It will facilitate overseas institutions to hold renminbi bonds, reducing the costs of overseas institutional investors to join Swap Connect. This initiative will be jointly prepared with Hong Kong and will be launched as soon as possible," she said.

Hong Kong's market regulators and the stock exchange operator welcomed the PBOC's new initiative.

In a statement, Hong Kong Exchanges and Clearing said it plans to implement the new measure by the end of this year.

The Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission said they will guide financial infrastructure institutions to take forward the preparatory work.

"This measure will provide Northbound Swap Connect investors with the additional choice of non-cash collateral, reducing their liquidity cost and improving capital efficiency. It will also help vitalise offshore investors' onshore bond holdings and further enhance the attractiveness of onshore bonds," an HKMA spokesperson said.