Trading in bond futures to resume
Beijing ready to launch derivatives linked to government debt next week, report says
China will start trading government bond futures next week, the Securities Times reported, allowing investors to manage risk 18 years after the derivatives were suspended following a probe into alleged market manipulation.
Trading would begin on Friday, according to the Securities Times, which attended a briefing by the China Securities Regulatory Commission yesterday.
The China Financial Futures Exchange released guidelines on its website for the five-year note as the underlying security. The daily trading limit is set at 2 per cent on either side of the previous day's settlement price, according to the statement.
The contracts will help Beijing achieve the central bank's goal of liberalising interest rates and deepen financial markets as Premier Li Keqiang tackles slowing growth. Last month, the People's Bank of China removed a floor on borrowing costs previously set at 30 per cent below the benchmark, as Li pledged to give market forces a bigger role. Governor Zhou Xiaochuan said on August 19 he was preparing to free up savings rates.
"The futures will function as a basic tool to manage volatility," said Huang Hai, Beijing-based deputy head of the research department at SDIC CGOG Futures, a unit of State Development & Investment Corp. "As China is trying to liberalise interest rates, markets can be more volatile, and such a product is essential for risk management."
China became Asia's second-largest government bond market at the end of last year, with 7.42 trillion yuan (HK$9.4 trillion) of notes outstanding, according to the CSRC. The mainland began treasury futures trading in 1992 and stopped it three years later.