China sets stage for trading 10-year govt bond futures

[SHANGHAI] China Financial Futures Exchange (CFFEX) has issued draft rules for the launch of 10-year government bond futures, a move seen as another step towards interest rate liberalisation.

The futures will be based on long-term government bonds with durations of 6.5 to 10.25 years to their maturity, the CFFEX said in the draft rules published late on Wednesday in its website, www.cffex.com.cn.

The futures will have a face value of 1 million yuan (US$161,000) apiece, bearing a nominal interest rate of 3 per cent, it said.

The exchange plans to list three quarterly contracts initially, selecting the nearest in time among March, June, September and December contracts, it said.

Trading in the contracts, to be only physically delivered on maturity, will be subject to margin requirements of at least 2 per cent and a range of settlement prices of 2 per cent up or down, it said.

The public has up to Jan. 14 to suggest amendments to the draft rules, signalling that the new futures will be launched in the not-too-distant future.

China re-launched government bond futures in September 2013 after an 18-year hiatus. The launch provided banks and corporates hedging tools seen as a prerequisite before further liberalisation to China's deposit and lending rates.

So far, only three five-year government bond futures contracts are traded in the CFFEX.

The PBOC completely freed banks' lending rates in July 2013.

Among other reforms, the central bank raised the ceiling for deposit rates to 1.2 times the benchmark level in November 2014 from the previous 1.1 times while it has also pledged to liberalise deposit rates within a couple of years.

REUTERS