China poised to launch government bond futures -paper

SHANGHAI Feb 9 (Reuters) - China will soon launch simulated trading in government bond futures, local media reported on Thursday, citing an unnamed source.

Ten institutions will participate in the pilot project, including futures companies, securities companies and commercial banks, China Securities Journal quoted the source as saying.

The project will involve "simulated" trading, according to the report, so it is unclear whether actual cash settlement and delivery of the underlying bonds will occur as part of the pilot.

Conditions are ripe for re-launching government bond futures, the source is reported to have said. The volume of bond issuance has increased in recent years, and liquidity has improved. The issuance of bonds at different maturities has contributed to the formation of a yield curve from 3 months to 30 years, he reportedly said.

The chief of China's securities watchdog, Guo Shuqing, said in January that the agency would actively develop stock, bond, fund futures and options. He specifically mentioned government bonds and silver as futures worth developing.

Zhu Yuchen, head of the Shanghai-based China Financial Futures Exchange, which is governed by CSRC, said in December that the exchange was planning to launch government bond futures.

China has some experience with government bond futures trading. Such trading was launched in 1992, but the market was halted in 1995. The small volume of government bonds outstanding was insufficient to support the large volume of futures trading that occurred at that time, leading to speculation, insider trading, and other forms of market manipulation, the paper explained.

Commodity futures have traded in China since the 1980s. CSRC launched equity index futures in 2010. (Reporting by Gabriel Wildau; Editing by Ken Wills)