Initially, only "northbound" trading will be possible - investment flow from Hong Kong into China - with "southbound" flow to be considered later, according to a joint statement from the People's Bank of China and the Hong Kong Monetary Authority.
They will work with the Hong Kong Exchanges and Clearing (HKEX) and Central Moneymarkets Unit to establish mutual bond market access between Hong Kong and mainland China.
On Thursday, shares in most in China and Hong Kong lost ground. There will be no daily quota, and the regulators didn't provide a date for when trading would begin.
Commercial and residential property prices in Hong Kong have been fueled by an influx of money from Chinese mainland investors and developers.
Authorities are seeking to counter outflows and win inclusion in global bond indexes.
In another step to open up China's capital markets, Hong Kong and Chinese regulators have formally approved a long-awaited scheme to connect China's $9.5T bond market with overseas investors.
Howard Lee, HKMA's executive director, said the bond connect will offer investors a "new and convenient channel" with fewer technical hurdles than accessing the interbank bond market directly.
In a separate statement, the HKMA said the scope of eligible investors would include overseas central banks, sovereign wealth funds, global financial companies, and medium- to long-term institutional investors.
Bond Connect represents another significant breakthrough in the opening of the Mainland bond market and an important step in closer interaction and cooperation between the Mainland and Hong Kong, which will further strengthen Hong Kong's position as an worldwide financial centre. Foreign investors' holdings of Chinese onshore notes rose to 830 billion yuan (RM517.8 billion) in March, from 815 billion yuan in February, according to central bank data.
"The company is optimistic of the long-term prospect of this investment", it said in a filing to the Hong Kong stock exchange.
Links of stock trading between Hong Kong, Shanghai and Shenzhen were launched in 2014 and 2016, respectively, significant steps of the internationalization of China's financial market. "The site will be developed into a landmark office building with retail facilities and is expected to be completed in around 2022", Henderson Land, the buyer, said on Tuesday.
Worldwide investors have been allowed direct access to the China interbank bond market since past year and some market participants have questioned the need for an additional trading scheme.
Around two months ago, Premier Li Keqiang said the bond connect would be established on a trial basis this year during a press conference after the national legislative annual session, promising continued support for Hong Kong from the central government.