Hong Kong launched offshore Chinese government bond futures on Monday, giving foreign investors a new risk-management tool as Beijing steps up efforts to expand the yuan’s global use through the Asian financial hub.
The offshore 5-year CGB futures 0#HRBF:, the only such contract listed outside mainland China, began trading on Hong Kong Exchanges and Clearing. The instrument is traded and settled in yuan.
The launch marks another milestone in Beijing’s effort to internationalise the yuan and further open its financial markets, following a decision in April to allow qualified foreign investors to trade onshore treasury bond futures for hedging purposes.
“Global investors currently hold 3.2 trillion yuan (US$474.01 billion) of Chinese bonds, and their needs to manage interest rate risks keep growing,” Wu Qing, chairman of the China Securities Regulatory Commission told a ceremony in Hong Kong.
The new bond futures contracts would strengthen Hong Kong’s offshore yuan hub status and “help foreign investors hold Chinese bonds with greater confidence”, Wu said.
China has pushed for greater connectivity with Hong Kong, having announced a series of measures to bolster currency, bond and gold trading in the city, and has been promoting cross-border investment.
The CSRC chairman pledged on Monday to strengthen cooperation with Hong Kong to facilitate the launch of more yuan-based investment products, as well as exchange-traded funds to expedite global asset allocation toward China.
RISK-MANAGEMENT TOOL
The offshore 5-year CGB futures contracts 0#HRBF: for September delivery were traded 1.1 percent higher at 107.660 around noon.
Each contract has a size of 500,000 yuan (US$74,046), half that of the onshore equivalent, and will be cash-settled with no physical delivery of the underlying bonds.
GF Securities said in a note that investors can use the new tool to hedge risks, make directional bets, or seek arbitrage between China and Hong Kong.
Global demand for yuan assets has continued to grow, with overseas investors adding Chinese government bonds to their portfolios since the Iran conflict broke out, drawn by their low correlation with Western markets.
China and Hong Kong regulators are actively preparing to include RMB-counter and real estate investment trusts into the cross-border Connect scheme, CSRC’s Wu said. The Hong Kong Stock Exchange’s RMB-counter allows eligible stocks listed in the city to trade in the yuan.
“I am confident that the bridge will continue to grow wider, stronger, and more efficient,” Wu said, referring to the investment link Connect.
China has already rolled out a slew of measures this year to advance Hong Kong’s role in the yuan internationalisation drive.
HKEX and the China Foreign Exchange Trade System are developing an electronic trading platform for fixed income and currency products, authorities said last month.
Reuters