Friday, July 10, 2020
Martin Hennecke

Chinese T-bond futures to debut
Hong Kong Exchanges and Clearing (0388) is planning to officially launch a futures contract for Chinese treasury bonds (T-bond) as soon as this year after piloting the product in 2017, according to chief executive Charles Li Xiaojia. Li yesterday told a conference in Hong Kong that the internationalization of yuan includes three phases, in which the introduction of Chinese T-bond futures will complete the second phase. The first phase is that yuan's wide use in settlement and investment while the third phase is that corporates and sovereign institutions add yuan into its balance sheet as reserves, added Li. Lacking attractiveness for investors, the southbound Bond Connect, may not be introduced this year since it is "not a priority at this stage" with a relatively high domestic yield, although Li said the introduction will happen in the future. Prior to Li's comment, it has been reported in the past that China will unlikely open up the Southbound channel in the first couple of years. Meanwhile, Ba Shusong, chief China economist at HKEx, said at the conference that yuan's weighting in the international market is still at a low level. But Ba expects the currency to be further internationalized in the next a few years with the growth of China's outbound investment. He also said yuan's internationalization will help reduce the effect on EM markets during US dollar volatilities. The local bourse has been working hard to provide a competitive number of fixed income and derivatives offerings in the city as Hong Kong wants to develop its own fixed income and derivatives market to become a truly global financial centre. HKEx and China Foreign Exchange Trade System has since last year teamed up to found a venture, the Bond Connect Company, to handle admission and registration for international investors who want to trade mainland bonds and support trading services related to the new debt-trading link. Bond Connect is a mutual market access scheme that allows investors from Mainland China and overseas to trade in each other's bond markets through connection between the related Mainland and Hong Kong financial infrastructure institutions. Northbound trading of Bond Connect was commenced in July last year. Trading through Bond Connect reached 162.58 billion yuan with a quarter-on-quarter increase of 7.23 percent in the first quarter of this year. By the end of May, 315 overseas institutional investors had entered the China interbank bond market through Bond Connect, according to HKEx. Among them, the most active overseas institutional investors were commercial banks and investment products, while the most active onshore dealers were domestic large commercial banks and foreign banks.

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