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Banks' participation in the Treasury ond futures market meets internal needs

Fang submitted 2020-09-01 14:08:21

As a standardized on-exchange interest rate derivative product, Treasury bond futures have high market transparency and low transaction costs. Its efficient risk management function has been fully practiced and recognized by the international financial market. With the continuous advancement of my country's interest rate marketization, the huge amount of bonds in various accounts of commercial banks are facing greater risk of interest rate fluctuations. There is an urgent need to hedge interest rate risks through treasury bond futures, efficiently manage duration, expand bond underwriting business, and increase asset returns rate.

First, commercial banks have strong interest rate risk management needs. Commercial banks are the most important investors in my country's national debt market, and they bear the interest rate risk caused by holding large amounts of national debt. During the period when interest rates continued to fall, Treasury bond investment did earn stable investment income for commercial banks. However, the risks faced during the period of rising interest rates are also greater. In theory, when market interest rates rise, banks can earn interest income without losing money as long as they hold treasury bonds at maturity. However, in actual operation, banks often suffer losses to varying degrees: when banks hold treasury bonds at maturity, they give up the opportunity to use this part of funds to obtain higher returns, and the opportunity cost will increase; when banks sell bonds for liquidity, they will inevitably suffer losses caused by the decline in bond prices, turning the banks' floating losses into real losses. Therefore, banks participating in treasury bond futures can use their efficient hedging mechanism to avoid interest rate risk.

Second, commercial banks use treasury bond futures for efficient duration management needs. Treasury bond futures can be used to adjust the portfolio duration of bank accounts more efficiently. For bank accounts with a huge cash bond portfolio, as the inter-bank bond market is an over-the-counter transaction, adjusting duration through cash bond trading is not only costly, but also has a longer adjustment period, and it is easy to cause fluctuation of the yield of the cash bond market, which is difficult to implement in practice. As a standardized derivative product, Treasury bond futures adopt centralized matching bidding transactions, with high market transparency and good liquidity, and the duration adjustment of the bank account bond portfolio can be completed in a short time without adjusting the asset structure. At the same time, treasury bond futures adopt margin trading, which makes risk management more efficient, so that banks do not need to be bound by cost when adjusting portfolio durations flexibly.

Third, commercial banks use treasury bond futures to promote the demand for product innovation. The development history of global large commercial banks shows that wealth management business is the most important business to improve the comprehensive competitiveness of banking financial institutions. At present, China's commercial banks are gradually shifting from a single credit business to a comprehensive operation type, and the scale of wealth management assets is expanding rapidly. However, the financial products of domestic commercial banks focus on fixed-income products. The single product form and homogeneous investment structure hinder the development of financial products. Commercial banks can use treasury bond futures to develop treasury bond futures spot arbitrage products and wealth management products linked to treasury bond futures to provide customers with safer and more diversified product choices to meet customers' increasingly diverse product needs. In addition, commercial banks can also use treasury bond futures to decompose and combine traditional investment products such as bonds according to the risk tolerance of different customers to form wealth management products with different characteristics, so that the product returns and risk characteristics can be adapted to the customer's income expectations and risk preferences and provide customers with personalized financial services.

Fourth, commercial banks use treasury bond futures to expand the demand for bond underwriting business. At present, the market-oriented issuance mechanism of national debt has been established, and the efficiency of treasury bond issuance has been continuously improved. All book-entry government bonds are publicly issued through bidding, and the government bond underwriting syndicate system has been continuously improved, which has greatly increased the marketization of the interest rate of government bond issuance. Underwriting syndicate members face certain interest rate risks in the process of underwriting treasury bonds. They can participate in government bond futures and short the government bond futures while passively holding bonds, so that they can bear the obligations of the underwriting syndicate while reducing the risk of inventory fluctuations caused by passive investment.

Fifth, the treasury bond futures market is conducive to the establishment of a sound benchmark interest rate system. Treasury bond futures can help improve the pricing efficiency of the bond market and play a positive role in the formation of benchmark interest rates. First, the treasury bond futures market has the advantages of low cost and strong liquidity, which can more quickly reflect market information, promote prices to reach an equilibrium level, and guide the price trend of the spot market; secondly, investors in the treasury bond futures market are more diversified and gather information More abundant, the price reflects the market information more fully; finally, the treasury bond futures adopts a bidding trading mechanism, and the price formation is more accurate, authentic and authoritative. Therefore, the treasury bond futures market can help improve the pricing efficiency of the bond market and accurately reflect market expectations, thereby conducive to improving the domestic benchmark interest rate curve, providing a solid basis for asset pricing for banks and other financial institutions, and meeting their needs for establishing a sound benchmark interest rate system.

Sixth, Treasury bond futures can help meet the diversified demand of commercial banks for interest rate derivatives. At present, the domestic over-the-counter interest rate derivative products have made considerable development, and products such as bond forwards, interest rate swaps, and forward interest rate agreements have been launched one after another. However, these are all over-the-counter interest rate derivatives traded in the inter-bank market. Although the trading volume continues to increase, due to the characteristics of over-the-counter inquiry transactions, the entry threshold for interest rate derivatives is relatively high. Banks may face difficulties in selecting counterparties when engaging in over-the-counter derivatives transactions. In contrast, treasury bond futures are highly standardized and transparent, which helps promote the complementary and coordinated development of on- and off-market interest rate derivatives, fully meet the diversified needs of banks for interest rate derivatives, and promote the health of the entire interest rate market. development of.

Seventh, commercial banks can use treasury bond futures to meet their needs to increase their return on assets. Commercial banks can use treasury bond futures to construct synthetic assets and increase the yield of bond investments. For example, for the managers of bank assets, they originally needed to allocate part of their funds to bonds with lower risks such as treasury bonds. Now they can use treasury bond futures to replace the treasury bonds that originally needed to be invested, and use treasury bond futures to achieve the same allocation of treasury bonds with minimal occupation. And invest the remaining part in higher-yielding financial bonds or corporate bonds to increase the total yield of asset investment.

In short, as an indispensable tool for the stable operation of the bond market, treasury bond futures are an indispensable part of a mature capital market. Treasury bond futures provide commercial banks with effective tools to avoid interest rate risks, manage the duration of asset portfolios, promote product and business innovation, and increase asset portfolio yields and also help to further promote the development of the domestic financial market and the international competitiveness of commercial banks.

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