Brokerages line up to offer treasury ETFs

Guotai Asset Management Co Ltd (Guotai AMC) plans to apply later this week with the China Securities Regulatory Commission to launch exchange traded funds (ETFs) tracking treasury bonds, Li Yebin, a media manager from the company, told the Global Times Monday, a move which will see the Shanghai-based fund company enter the race to become the first mainland financial firm to issue a derivative product tied to the country's emerging debt market.

Within the past month, several mainland fund companies, including Bosera AMC, have come forward seeking regulatory approval to place treasury bond-tracked ETFs, a trend which experts say points to the growing expectations surrounding such products.

The launch of ETFs tracking treasury debts would do much to stimulate the development of China's embryonic bond market ahead of the long-anticipated launch of treasury bond futures by giving capital holders more options and strengthening the market's pricing abilities, according to experts.

The flexibility of treasury bond-tracked ETFs - which provide investors with the opportunity to profit during both bull and bear markets by speculating on pricing trends - will attract a great deal of attention from market participants if regulators green light such products for the market, Wang Fang, a fixed-income investment analyst from Huatai Securities' fund research center, told the Global Times.

Qu Wenqian, an equity market analyst from Z-Ben Advisors, a Shanghai-based fund investment consultancy, explained that investors can raise or lower their stakes in bond-tied ETFs whenever the markets are open, which will pique the interest of domestic investors looking for low-commitment positions.

Furthermore, adding more liquidity to the bond market, as the introduction of treasury bond-backed ETFs is expected to do, will temper the bond market's pricing mechanism and lay the groundwork for the eagerly-awaited arrival of treasury bond futures, according to Wang.