The listed investors of the HKEx Treasury futures contract are all here.

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Text | Dong Dezhi Ke Congwei

Guosen Securities Macro Analyst

ATTENTION ! HKEx Treasury Bond Futures Contract

The five-year Chinese Treasury Treasury Futures (HTF) contract, which was launched by the Hong Kong Stock Exchange, was officially traded on April 10, the world's first onshore interest rate product open to offshore investors. HTF provides a more convenient and transparent tool for offshore investors to manage RMB interest rate risk.

Table 1: Introduction to HKEx HTF Contract Rules and comparison with CICC's 5-year Treasury Bond Futures Contract

Specifically, for the five-year Chinese Treasury Treasury Bond Futures (HTF) launched by the Hong Kong Stock Exchange, the following points should be noted:

1. The investor structure of the contract

The treasury bond futures contract launched by the HKEx can be used by investors from different backgrounds. Compared with the treasury bond futures products of CICC, one of the biggest differences between HKEx's treasury futures is foreign investors and domestic commercial banks and insurance. Major government bond holders such as companies that cannot participate in CICC Treasury futures can participate, and the value of such investors or institutions is very large.

2. Contract settlement method

The settlement method of the treasury bond futures contract launched by the Hong Kong Stock Exchange is to settle the contract price in cash. This is mainly because the investors of the HTF contract have both domestic institutions and overseas institutions. The foreign investors participate in the Bank of China 601988. It is inferior to domestic investors. In addition, HTF is an offshore trading bond futures. There are no bonds available for physical delivery, and there are problems with custody and transfer custody. Therefore, for HTF, cash settlement ratio is adopted. Physical delivery is more reasonable.

3. The quotation method of the contract

The quotation method of the HTF contract is quoted according to the percentage of the contract amount. For example, if the quotation of the HTF1706 contract is 99.388, the value of the futures contract represented by the price is 99.388%*500,000=496940 yuan.

4. Market maker system

HTF contracts introduce a market maker system to provide liquidity support, and the background of market makers will affect the quotation of treasury bonds futures to a certain extent.

5, contract trading time

HTF contracts are traded between 9:00-12:00 and 13:00-4:30, which is in line with the trading hours of the Chinese interbank bond market.

6. Determination of the national debt basket

The bond basket of the HTF contract is selected by the China Bonds according to the relative liquidity coefficient, and the three most treasury bonds with the best liquidity are selected from the bond pool (if the liquidity coefficient of the two government bonds is the same, the listing is late), a basket of treasury bonds is determined. No adjustments will be made during the relevant futures contract period.

The bond pool will be selected by China Bond on the 5th working day before the issuance date of the new futures contract, and will be selected according to the following conditions: the Ministry of Finance of the People's Republic of China, the RMB, the circulation in the interbank market, and the interest-bearing fixed-rate government bonds that pay interest once a year. The period of repayment on the last trading day based on the futures contract is not less than 4 years (including 4 years) and not more than 7 years (excluding 7 years).

There are two points to note here.

The first point

HTF's Treasury basket range is 4-7 years (excluding 7 years) on the last trading day of the contract. CICC's TF and T contracts can be settled for the first day of the contract expiration month. -5.25 years and 6.5-10.25, HTF's Treasury basket range overlaps with the T-contractable coupon range.

Second point

The HTF contract has only three government bonds in the national debt basket. Take the HTF1706 and HTF1709 contracts as examples. The HTF1706 and HTF1709 contracts have national debt baskets of 170006.IB, 170001.IB and 160021.IB, of which 170006.IB is the 10-year government bond of CICC. For the delivery bonds of futures contracts, the total volume of the three coupons is 165.24 billion. Compared with the 10 bondable bonds of CICC treasury futures, the HTF contract has a small amount of spot.

7, the reference settlement price determination

The HTF reference settlement price is divided into a daily reference settlement price of a basket of treasury bonds and a reference settlement price of a treasury bond futures contract.

(1) Calculation of the daily reference settlement price of a basket of government bonds:

Where ri is the yield of the Chinese bond on the day of the i-th government bond in a basket of treasury bonds; n is the number of national debts in a basket of treasury bonds, currently 3; B(T) is the daily reference settlement price of a basket of treasury bonds on the day.

(2) Treasury bond futures contract reference settlement price calculation:

Where F(T) is the reference settlement price of the futures contract, and reporate is the market financing cost, specifically adopting the 7-day repurchase rate automatically generated by the system of the Chinese debt on the calculation day as of 17:00.

Taking April 7, 2017 as an example (for example), the yields of Chinese bonds of 170006.IB, 170001.IB and 160021.IB were 3.2300%, 3.0797% and 3.0724%, respectively, R007 was 2.912%, HTF1706 and HTF1709 contracts. The expiration dates are 2017-06-09 and 2017-09-08, then r is 3.1274%, B(T) is 99.4188, and HTF1706 and HTF1709 are 63/365 and 154/365, respectively, HTF1706 and HTF1709. The reference settlement price of the treasury bond futures contract is 99.4188*(1+63/365(2.9123%-3.1274%))=99.382 and 99.4188*(1+154/365(2.9123%-3.1274%))=99.329.

In addition, we can get the inter-period spread of the settlement price of the HTF contract (HTF1706-HTF1709):

Where t1-t2 is the interval between the expiration date of the near-month and the far-month contract, which is 3 months.

8. Calculation of contract duration

The calculation formula for the contract reference settlement price:

Taking April 7, 2017 as an example (for example), R007 is 2.9123%, r is 3.1274%, B(T) is 99.4188, and TTF of HTF1706 and HTF1709 are 63/365 and 154/365, respectively, HTF1706 and HTF1709. The reference settlement prices of treasury futures contracts are 99.382 and 99.329, respectively. The duration of the two contracts is:

9. The margin level of the contract

The basic deposit and maintenance deposit of the futures contract specified by the Hong Kong Stock Exchange are 4,974 yuan / piece and 3,979 yuan / piece, respectively. The basic deposit and maintenance deposit for inter-temporal arbitrage are 3,631 yuan per pair and 2,905 yuan / per pair.

Treasury futures strategy

Directional strategy

Strategy Review: Three days after the Ching Ming Festival holiday, the news was light, and the government bond futures, especially in the ten-year period, rose. It is expected that some investors will play a game against the upcoming price and financial data. Overall, TF1706 weeks increased by 0.025, corresponding to a decline in yields of less than 1BP, while T1706 weeks increased by 0.320, corresponding to a yield of about 4BP. As for the current bonds, the 5-year government bond yield is basically the same as last week, and the 10-year government bond yield is about 1BP.

Table 3: Retrospective directional strategy for the past week (2017/4/5-2017/4/7)

According to the high-frequency product prices of nine major industries, such as ferrous metals, non-ferrous metals, and chemical products, the price index of production materials in the circulation sector fell by 1.1% in March, the first time since July 2016, it was turned negative, according to historical correlation. Sexual experience, it is expected that the probability of a PPI ring in March will be negative. On March 50, the city's food growth was 2.7%, and the CPI food item was estimated to be -1.9% in March. The non-food ratio was lower than the previous two oil prices in March. The chain ratio should be lower than last year. It is expected that the CPI will fall back to 0.6 in March. %.

In short, we estimate that the March data will show a downward trend in economic growth + inflation continues to innovate low + financial data slightly higher, and the fundamentals continue to support the decline in long-term bond yields. Based on the average IRR over the past week, the theoretical price range for TF1706 is 99.16-99.38, and the theoretical price range for T1706 is 96.87-97.63.

Table 4: Judgment of the current bond yield and the theoretical price range of the government bond futures (2017/4/10-2017/4/14)

Current arbitrage strategy

IRR strategy

In the past week, the futures trend was stronger than the current coupons. The IRR continued to rise as we expected. The IRR level of the TF1706 reached a maximum of 2%, while the IIR level of the T1706 also turned from negative to positive and rose to around 0.4%. We maintain the judgment that the IRR still has upside.

Table 5: IRR Week Review (1706 Contract)

Basis strategy

Strategy Review: In the past week, futures have been stronger than current bonds, and the basis continues to converge as we expected. Our recommended short basis strategy has benefited greatly, with a 5-year average return of 0.18 and a 10-year average return of 0.29.

Table 6: Review of the basis strategy for the past week (2017/4/5-2017/4/7)

Although the current net basis has accumulated a certain amount of convergence, the net basis of 5 and 10 years has reached the level of 0.2 and 0.6 respectively, but there is still the possibility of continuing convergence. The main logic:

(1) During the tight currency period, the capital cost center is expected to further come to power, resulting in a decrease in net holding income;

(2) The value of delivery options has not yet appeared. The current rate of return is comparable to that of September 2015. From September 2015 to December 2015, it was a bull market. The net basis difference between the 5 and 10 years was 0.3 and 0.6, indicating that there is not much room for the current net basis to rise with the yield.

Figure 1: Historical basis of the net basis of the ten-debt

Intertemporal strategy

Inter-temporal spread direction strategy

This week's inter-period spreads slightly down, TF1706-TF1709 week overall down 0.0850; while T1706-T1709 week overall down 0.0550.

At present, the TF spread is about 0.9; the T-span spread is about 0.6, and the spread is at the middle level. If the difference between the three-month SHIBOR and the national bond yield spreads, the spread will be correspondingly expanded; if the difference between the three-month SHIBOR and the government bond yield narrows, the spread will be narrowed accordingly.

At present, the difference between the three-month SHIBOR and the 5-year and 10-year government bond yields is 121BP and 100BP, respectively, which are all at historically high levels. The gap between the three-month SHIBOR and the government bond yield has further narrowed, and the inter-period spread has narrowed space. .

In addition, from three perspectives, we insist on short-selling spreads, that is, the strategy of 1706 and 1709 is empty:

(1) Historically, the recent monthly closing prices of TF and T - the historical resistance of the far-month closing price are 0.80 and 1.20, respectively, and the current closing price of the recent month - the closing price of the distant month is near the historical resistance level. Big;

(2) The difference between the net basis difference of 1709 and 1706 is still at a high level. From the perspective of long-term repair space, the repair requirement of the 1709 contract is stronger;

(3) For investors who are bearish on the market and have hedging demand, the basis repair reduces the cost of hedging and improves the hedging power.

Shorting the spread spread and holding the coupon

For the 5-year variety, the near-month delivery can get 170001.IB and 160021.IB are ideal, and can be used directly for the delivery of the far-month contract, all of which can get good returns; for the 10-year variety, the near-month delivery can take To 16010.IB is relatively ideal. After the delivery, you should change the coupon to 170006.IB in time to maximize the profit.

Table 7: 5-year Treasury futures short-sell inter-period spreads and proceeds from bond delivery

Table 8: 10-year Treasury futures short-sell inter-period spreads and proceeds from bond delivery

Cross-species strategy

In the past week, TF1706 has a yield lower than 1BP, T1706 has a yield of about 4BP, and the futures yield curve narrows by about 3BP. The empty 2 hand TF1706 + more than 1 hand T1706's flat curve strategy benefited 0.14.

Maintain the strategy of flattening the recommendation curve, that is, empty 2 hands TF1706 + more 1 hand T1706.

Figure 2: 10-year and 5-year government bond spreads

Interest rate swap strategy

Directional strategy

This week, the central bank's open market net return of 100 billion yuan, although the central bank has not carried out open market operations for many days, but after the smooth end of the quarter, the funds remain accommodative. This week IRS-Repo1Y fell 6BP to 3.56% from 3.61%, while IRS-Repo5Y dropped 3BP to 3.87% from 3.90%.

At the beginning of the month, the impact of routine payment has passed, and there is no unfavorable factor of contracting liquidity in the short term. As the major banks supply a full recovery, the funds will warm up. However, the April-May period has always been the peak of the annual tax payment. It is expected that the pressure on the funds will resume after the second half of the month. We predict that the swap rate will fluctuate. In the next week, IRS-Repo1Y will be in the range of 3.50-3.60%, and IRS-Repo5Y will be in the range of 3.80-3.90%.

Repurchase voucher + IRS

This week's repurchase voucher + IRS spread level from 10BP to 12BP, the spread level is still lower than the cost of capital, the strategy has no profit margin.

Spread transaction

In the past week, the spread of IRS-Repo5Y and IRS-Repo1Y has been expanded from 30BP to 32BP, and our recommended 1×5 flattening transaction has a small loss of 2BP.

Consistent with Treasury futures, we believe that it is still in a tight currency period, so we continue to recommend 1×5 flattening transactions.

Basis transaction

In the past week, the spread between SHIBOR3M and FR007 fluctuated significantly, and the spread was down from 171BP to 130BP. At present, the spread between the two is still at a historical high, we believe that the spread between SHIBOR3M and FR007 will narrow (end).