(Yicai Global) Aug. 6 -- China Financial Futures Exchange (CFFEX) will commence trading of two-year treasury bond futures in mid-August, adding a new instrument for the bond market to hedge following the five-year and 10-year futures.
The treasury bonds have received the green light from China Securities Regulatory Commission for trading from August 17, CSRC spokesperson Chang Depeng said at a press conference.
Many insiders interviewed by Yicai Global think the listing of new treasury bond futures will boost the trading of existing bonds.
"The two-year futures will further bring risk management and price discovery of treasury bond futures into play to better serve the market and the real economy," Zhang Ge, head researcher at CITIC Futures Financial Futures, indicated.
"On the one hand, the new bond futures will help investors manage short-term interest rate risks, especially the interest rate risk of credit bonds with a shorter duration," Zhang said. "On the other hand, it will work with the existing five-year and 10-year Treasury bond futures to help the market to be more accurately priced, which will help monetary policy to be transmitted quickly and effectively, and accurately guide market investment and resource allocation, while improving the yield curve.
"The 2-year futures will enrich hedging options of institutions", an unnamed source from Huatai Futures told reporters. "Many private-equity clients hold debts for less than two-and-a-half years, which do not fully match the existing five-year and 10-year treasury futures in hedge transactions". In his view, the listing of 2-year Treasury bond futures means banks are more likely to participate in futures hedging in the future.
"If two-year treasury bond futures match better the product duration and the exchange offers a margin reduction, the institution will consider increasing its participation", the person claimed.
A senior insider in the futures market told Yicai Global that the treasury bond futures market is far from brisk due to inadequate institutional participation. Two-year treasury bond futures will boost the market by stimulating the trading of existing instruments like five-year and ten-year treasury bonds.
"That's because institutions will cover all kinds of futures when setting short, medium and long-term bond allocations. In addition, two-year treasury bond futures can also enrich the institution's investment strategies", the person explained.
Zhang also predicts that overall demand for new treasury bond futures will be considerable, and they will activate the existing offerings.
In terms of investor structure, the insider stated that commercial banks will get more involved once the two-year treasury bond futures are traded. Zhang Ge states, however, that nothing will change for the time being. The main participants are still institutional investors like securities brokers and private placement agents.
Editor: William Clegg