Chinese government bond futures began trading in Hong Kong on Monday, marking the first time the hedging instrument is available offshore. The launch represents Chinese authorities' third attempt to use the tool to further open up the country's debt market.
The new 5-year China government bond futures contracts have a contract size of 500,000 yuan. Hong Kong Exchanges and Clearing (HKEX) set a minimum margin ratio requiring investors to put up only 7,980 yuan.
Minimum margin required for one 5-year China government bond futures contract in Hong Kong.
We have received a very positive response from international institutional investors.
Kevin Fan, HKEX's head of fixed income and currency product development, said many international institutional investors had already been actively trading in the Chinese onshore bond market. He noted the market had reached 200 trillion yuan as of June, making it the world's second largest after the US.
Foreign investors held 3.2 trillion yuan of onshore Chinese bonds at the end of March, accounting for 1.6 per cent of the total. Fan said the new futures will be the first offshore products allowing international investors to manage risks in their Chinese treasury-bond investments at a low cost.
Currently, international investors need a quota under China's Qualified Foreign Institutional Investor (QFII) programme to trade onshore bond futures. The HKEX offshore sovereign bond futures will allow investors without such quotas to trade the contracts in Hong Kong, either to hedge risks or as an investment.
Senior stock exchange executives said international asset managers, pension funds and insurance companies have shown strong interest in the offshore China government bond futures.
