(Aug 3): Chinese government bond futures began trading in Hong Kong on Monday, marking authorities’ third attempt to use the hedging tool to further open up the country’s debt market.

The September futures on five-year Chinese sovereign notes opened at 106.685 yuan per contract, before rising to an intraday high of 107.730 yuan. Each contract’s size is 500,000 yuan (US$74,058 or RM302,682.45), settled in cash rather than via physical delivery of bonds.

The corresponding onshore futures opened at 106.545 yuan.

The debut follows a short-lived trial in 2017 and another aborted plan initiated in 2023.

The launch of the product is part of China’s broader push to attract foreign participation in the world’s second-largest bond market, as well as to aid its long-term goal of yuan internationalisation. It follows moves by Beijing in the past year to expand foreign investors’ presence, including granting limited access to onshore futures and the use of bonds as collateral for short-term loans.

“The opening price of the offshore five-year China government bond futures contract showed only a small deviation from the price of its onshore counterpart, underscoring the strong anchoring effect of onshore market pricing,” said Li Yue, vice-president of fixed income at ICBC International. “Once the five-year bond futures contract establishes a stable trading track record, regulators are expected to gradually introduce offshore government bond futures with other maturities.”

Hong Kong first launched five-year Chinese government bond futures in April 2017, before suspending the pilot scheme in December, citing the need for clearer regulatory requirements and cooperation with mainland China. The city had another attempt six years later to introduce futures on 10-year Chinese bonds in the first quarter of 2024, a plan that never materialised. 

After a slew of reforms in recent years, foreign holdings of onshore Chinese government debt rose to two trillion yuan as of June, from around 450 billion yuan in mid-2017. On the mainland, futures on two-, five-, 10- and 30-year government bonds are available. 

“It can be a very effective interest risk management tool for dim sum bond market as it helps with managing interest rate risk and credit risk separately within a bond portfolio,” said Vikas Gupta, head of Asia currencies and emerging markets trading at JPMorgan Chase & Co, referring to the offshore yuan debt market. “Once a market becomes sufficiently deep and liquid, participants will develop a range of strategies to realise value across products and curves.”

Meanwhile, the yield on China’s five-year government bond was steady, after finishing Friday’s session at 1.41%, the lowest closing level since February 2025.

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