Hong Kong further connects China to the world with launch of China Treasury bond futures

Rick Steves

“These unique new T-bond futures will help drive market liquidity and support the further development of Hong Kong’s RMB ecosystem, cementing the city’s role as the world’s leading offshore RMB hub.”

The Securities and Futures Commission (SFC) of Hong Kong has announced the upcoming launch of China treasury bond futures contracts.

Hong Kong Exchanges and Clearing Limited (HKEX) is preparing for this launch, including proposing amendments to relevant rules. The launch date and details will be disclosed as soon as possible.

Offshore investors have increasingly held China treasury bonds since 2017

Since the initiation of Bond Connect in 2017, offshore investors have increasingly held China treasury bonds. The demand for related hedging tools has also risen. The launch of China treasury bond futures in Hong Kong is strongly supported by the Mainland Government and regulators.

This tool is essential for risk management and is expected to encourage further offshore institutional investment in the Mainland treasury bond market, promoting its healthy development.

Julia Leung, CEO of the SFC, noted that the introduction of China treasury bond futures is a significant step in positioning Hong Kong as a top risk management center, especially for hedging equities and fixed income products with Mainland assets underlying.

“On top of Swap Connect and MSCI China A50 Connect Index Futures contract, the launch of China treasury bond futures will further expand the toolkit for overseas investors to hedge their exposure to Mainland assets. This is a key milestone in developing Hong Kong as a premier risk management centre, especially for hedging equities and fixed income products with Mainland assets underlying.”

The SFC and the China Securities Regulatory Commission have established cooperative arrangements for cross-boundary derivatives. These include sharing supervisory information and providing enforcement assistance, ensuring market integrity and aiding in the long-term development of China treasury bond futures contracts.

Reinforcing Hong Kong’s status as the leading offshore RMB hub

HKEX CEO Nicolas Aguzin highlighted that the Treasury Bond Futures launch is a vital new milestone. It adds to HKEX’s suite of China-related risk management tools and supports the development of Hong Kong’s Renminbi (RMB) ecosystem.

“The launch of Treasury Bond Futures is an exciting new milestone that adds to HKEX’s expanding suite of China-related risk management tools, as well as our overall FIC offering, providing investors with even greater choice and opportunity. These unique new T-bond futures will help drive market liquidity and support the further development of Hong Kong’s RMB ecosystem, cementing the city’s role as the world’s leading offshore RMB hub. We look forward to working closely with the Securities and Futures Commission and all our partners to ensure the successful rollout of this exciting new risk management tool, as we connect China and the world.”

The Treasury Bond Futures, along with MSCI China A50 Connect Index Futures and Swap Connect, will aid regional and global investors in effectively managing their interest rate and investment risks, thus fostering greater international participation in China’s equities and fixed-income markets.

Since the Bond Connect launch in 2017 and Swap Connect in May this year, there has been significant growth in international participation in China’s bond market. The holdings of international investors in Mainland China’s onshore bonds have risen from RMB 0.8 trillion in June 2017 to RMB 3.33 trillion in June 2023.

HKEX is currently finalizing preparations for the Treasury Bond Futures launch. The implementation details and official launch date will be announced soon.

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