Hong Kong debuts offshore China government bond futures to deepen yuan use

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 five-year CGB futures, the only such contract listed outside mainland China, rose 1 percent after beginning trading on Hong Kong Exchanges and Clearing (0388) on Monday.

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.

The futures product broadens interest-rate risk-management options for international investors and allows them to gain CGB exposure in the offshore market, which could help strengthen investor confidence in holding yuan assets, HKEX said.

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.

"As offshore investors deepen their participation in China's bond market, demand for tools to manage interest-rate risk has also grown," analysts at Industrial Securities said in a note. 

"The new contract fills a gap in exchange-traded interest-rate derivatives in the offshore market, and further development of market infrastructure and related products could help draw more foreign investment into Chinese bond markets," they said.

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 has rolled out a slew of measures this year to advance Hong Kong's role in the yuan internationalisation drive, pushing to deepen market connectivity with the finance hub and broaden the use of the currency.

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 and staff reporter

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