China’s financial authorities plan to give domestic commercial banks access to the bond futures market, amidst broader efforts to heighten the allure of the world’s third largest bond market to foreign investors.
The China Securities Regulatory Commission (CSRC) is currently drafting legal amendments that will permit commercial banks to trade in bond futures by as soon as the end of the year, according to two sources speaking to the Financial Times.
Trading volumes on China’s bond futures market remain meagre, with only brokerages and several other investor categories allowed to participate.
While the amendment will not permit foreign investors to participate in the trading of bond futures, Beijing reportedly hopes the move will help to enhance the allure of China’s USD$13 trillion bond market by boosting liquidity and price discovery.
Big state-owned banks remain the largest investors in Chinese government bonds, and granting them access to hedging instruments is expected to improve broader market conditions.
Analysts already anticipate that over USD$100 billion in foreign capital is likely to flow into the Chinese bond market by early 2020, following the inclusion of Chinese government and policy bank bonds in the key Bloomberg Barclays Global Aggregate Index in April.