(Yicai Global) Jan. 9 -- Standard Chartered Bank became the first foreign bank given the go-ahead earlier this month to participate in the country’s treasury bond futures trading. The London-based lender also became the sixth so approved after five state-owned banks.

Overseas banks are an important bridge for China’s bond market to open up to the rest of the world, Yang Jing, vice president and general manager of Financial Markets of Standard Chartered Bank China, told Yicai Global.

“We’ll use treasury bond futures as a hedging tool to better fulfill the obligations of a market maker, serve domestic and foreign customers, and effectively manage the risks of customers and the bank,” Yang said.

The five state-owned banks have had no active treasury bond transactions since they secured regulatory approval in 2020, Yicai Global learned earlier from an industry insider, who said it was possible that joint-stock commercial banks and more domestic institutions will be approved for trading in the future.

“It’s not just of symbolic significance to allow foreign banks to participate in such trading,” a trader from a foreign bank told Yicai Global. “Foreign banks can get familiar with the trading system and procedures through the first transaction, which will help them do more such transactions in the future.”

Standard Chartered Bank is one of the most active Bond Connect market makers and domestic bond market makers, Yang told Yicai Global, noting that besides the existing interest rate derivatives, treasury bond futures can more effectively support foreign banks in hedging interest rate risks, thus better serving foreign institutions to invest in China's bond market.

It is more meaningful for commercial banks to participate in treasury bond futures trading than in derivatives such as interest rate options and interest rate swaps. Foreign capital has been hoping to join the treasury bond futures market over the past two years as these futures are considered to be the most effective tool for hedging interest rate risk in terms of liquidity.

Editor: Tom Litting