T-bond futures set to return

Trading in treasury bond futures in China will resume after 18 years, a move that experts said will spur interest rate liberalization and deepen reforms of the nation's financial markets.

The China Securities Regulatory Commission announced on Friday that, with the State Council approval, it had authorized the Shanghai-based China Financial Futures Exchange to conduct transactions in T-bond futures.

The CSRC said it will coordinate preparations for the new contract, including the announcement of the investor eligibility system, the entry policies for financial institutions, the mechanism for opening bond settlement accounts and the examination and approval of the new contract.

These preparations will take about two months.

Deng Haiqing, chief analyst of the fixed-income department at Hong Yuan Securities Co Ltd, said the move is positive for China's process of interest rate liberalization.

Deng said State banking institutions will be the first to benefit from T-bond futures.

"Other financial institutions will also welcome the change."

Treasury bond futures are helpful for institutions in pricing assets and hedging interest rate risk, according to Hong Hao, managing director and chief strategist at BOCOM International Holdings Co Ltd.

Zhang Shenfeng, chairman of the China Financial Futures Exchange, said the change was about time because the liberalization of interest rates has already reached the "middle stage".

The CSRC said China issued about 1.39 trillion yuan ($226.7 billion) in treasury bonds last year.

The outstanding balance of Chinese treasury bonds was 7.42 trillion yuan at the end of 2012, which was the sixth-largest in the world.

China introduced treasury bond futures in 1992 on Shanghai Stock Exchange, but trading was halted in 1995.