China’s banking and insurance regulator issued rules Wednesday allowing insurers to participate in treasury bond futures trading, making clear that it should be for hedging risks only and not for speculation, reported Caixin.
With large capital scale and long debt horizons, insurance companies are the main investors in longer-term treasury bonds. Without the ability to participate in treasury bond futures trading, the industry will lack risk-hedging tools and find it difficult to manage interest-rate risks of bond assets and to match up the maturity structure of assets and liabilities, an insurance industry insider told Caixin.
As of the end of January, Chinese commercial banks held nearly RMB 10 trillion ($1.41 billion) of treasury bonds, and insurers held RMB 360.6 billion, together accounting for two-thirds of total outstanding treasury bonds.
Based on the experience of the more mature market in the US, the participation of Chinese insurance companies in treasury bond futures is expected to bring to the market incremental investment of RMB 88.6 billion to RMB 110.8 billion, Citic Securities’ futures research team said in a report.