Trading of China govt bond future coming soon
Updated: 2013-07-09 10:41
The country is expected to launch a government bond futures market in two months time. This is China's second attempt at establishing a futures market in government bonds. That's after authorities shut down the sector due to investor speculation and manipulation nearly two decades ago. Investors are cheering, but they can also expect stricter regulation.
Chinese bond traders are keenly awaiting the relaunch of government bond futures.
The State Council approved the launch of such futures last week and trading could begin in two months time.
China's largest bank by assets, ICBC, says it will provide these investment products for risk management purposes.
For such institutional investors with a deep pool of government bonds, a futures market will provide risk-hedging options.
"If treasury yields become volatile, banks face huge risks. Hence treasury futures are an essential tool for banks to control and hedge against risks," Yang Hongsen, Director of China Asset Management Institute, said.
Just like their American peers in the 1970s, treasury futures were created for risk-averse investors to hedge against interest rate volatility.
That applies in China, too.
"Treasury futures will help in building a yield curve for interest rates. It will increase the marketization of interest rates as well," Hu Yuyue, futures researcher, said, Beijing Tech & Business Univ., said.
But when it comes to futures trading, high leverage is especially risky.
But Yu Junli, a market practitioner is confident with the current trading scheme.
Yu Junli, Vice GM of Green Futures, said, "Judging from the trials, trading is moderate, and there's not much volatility in prices. Overall, risks are managable."
Trial tests have been in the works for over a year now by China's top securities regulator the CSRC.