China pledges support for trading of treasury bond futures in Hong Kong
Top financial regulator declares support for move promoting yuan internationalisation and the city’s role as a yuan hub
China will double down on its support for Hong Kong as a global hub for the offshore yuan, with Beijing’s top market regulator saying that the city could soon begin offering trading of yuan-denominated treasury bond futures.
Beijing would support Hong Kong launching five-year Chinese government bond futures in the near term, making it easier for overseas investors to put long-term asset allocations into yuan assets, said Wu Qing, chairman of the China Securities Regulatory Commission (CSRC) at the annual Lujiazui financial forum in Shanghai on Wednesday, without giving a time frame.
His comments indicate that the much hoped-for financial derivative product may materialise soon in the city after lengthy regulatory discussions. An official launch would serve Beijing’s ambition of yuan internationalisation amid the diminishing role of the US dollar, while solidifying Hong Kong’s status as a global financial hub and the world’s biggest centre for offshore yuan transactions.
“The listing of [Chinese government bond] futures in Hong Kong has been discussed for a long time,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management in Hong Kong. “The announcement at the Lujiazui conference indicates the listing will likely happen soon. It would be a meaningful step forward to promote the offshore renminbi market.”
Demand for yuan assets has been rising as Middle East hostilities and fiscal stress on the US government prompt global investors to diversify from the US dollar. The yield on China’s benchmark 10-year government bond dropped close to a one-year low of 1.73 per cent, while the yuan strengthened to the highest level against the US dollar in three years.
The offering of treasury bond futures is the latest effort by Hong Kong to retain overseas investors, some of whom have rotated out of the city’s stock market to South Korea and Taiwan seeking more exposure to stocks linked to artificial intelligence. Global investors have also highlighted a lack of financial derivative products as a key concern preventing them from boosting their yuan-asset holdings.