HONG KONG, April 10 Chinese government debt
futures got off to a slow start in Hong Kong on Monday as
offshore investors, trading the world's third's biggest bond
market for the first time, grappled with some operational issues
and contract limits.
Only six contracts were traded as of midday, suggesting
foreigners keen to access the onshore bond market from the
financial hub will probably tread cautiously on concerns about
stability in China's opaque credit markets.
China re-launched the bond futures market in September 2013,
nearly two decades after a multi-billion-yuan trading scandal
led to its closure in 1995 and volumes have exploded in recent
"Offshore bond futures represent a tool for bond investors
to manage their interest rate risk, and for investors – in
particular those without access to onshore - to express their
views on the onshore bond market," said Frances Cheung, head of
rates strategy, Asia ex-Japan at Societe Generale in Hong Kong.
However, Cheung said the slow start was a result of some
constraints such as a position limit of 10 billion yuan ($1.45
billion) on net futures contracts.
"We are still studying if we need to open an account in the
exchange or do it via other institutions," said a trader at a
Chinese bank in Hong Kong.
Unlike its equity or FX market counterparts, bond investors
typically use swap contracts to hedge their interest rate risk.
And for those who use futures to manage interest rate risk,
Chinese policymakers have recently allowed some large investors
access to the onshore market for hedging purposes. This in turn
has reduced activity in offshore debt futures.
At $9.5 trillion in total market size, according to Moody's
Investors Service, China's bond market is third-biggest in the
world, behind the U.S. and Europe.
Analysts expect volumes to rise only gradually.
Contract sizes for the bond futures will be 500,000 yuan
($72,457) each, with the last trading day for contracts will be
the second Friday of the contract month.
While yields of onshore Chinese government debt are higher
than what is available in the developed bond markets of the West
and on most Asian markets, meagre foreign investor participation
has reflected concerns over protracted yuan weakness and
difficulty repatriating funds across the border.
In December, China's bond market suffered a punishing
selloff amid concerns over a liquidity squeeze and a mounting
debt load that had its origins in speculative and unproductive
Last month, some of the world's biggest index compilers such
as Citigroup C.N and Bloomberg took the first steps to including
Chinese debt in their indexes, while Premier Li Keqiang has said
China is considering linking the Hong Kong and the mainland debt
markets this year.
($1 = 6.9060 Chinese yuan renminbi)
(Reporting by Saikat Chatterjee and Michelle Chen; Editing by