Chinese treasury futures launch cements Hong Kong as premier yuan hub

It marks Hong Kong’s transformation from a yuan payment channel and funding pool into a comprehensive centre for yuan assets

When the Hong Kong stock exchange launched five-year China government bond futures on August 3, it did more than simply expand the city’s derivatives product suite.

Chinese government bonds, which have a low correlation with many overseas assets, offer diversification. Central banks and sovereign wealth funds continue to use them to diversify their reserve holdings, while insurers, pension funds and global asset managers are gradually increasing their participation.

From June 2017 to May this year, global holdings of Chinese interbank bonds increased from 800 billion yuan to 3.2 trillion yuan (US$474 billion), of which about 2 trillion yuan was invested in Chinese government bonds.

A global currency needs more than a large pool of investible assets. It also needs reliable pricing benchmarks, liquid secondary markets and efficient risk-management tools that allow investors to enter and exit positions efficiently and pursue different investment and hedging strategies.