GLOBAL TRADING IN YEN BOND FUTURES EXPECTED SOON
Global trading of yen bond futures is
just around the corner and they are expected to be listed soon
on the London International Financial Futures Exchange (LIFFE)
and the Chicago Board of Trade (CBOT), bond managers said.
    "Internationalisation of the yen through expansion of
overseas portfolios in yen assets is the key to the success of
global trading of yen bond futures," said Katsuyuki Okayasu,
general manager of Yamaichi Securities Co Ltd's bond division.
    "But Tokyo-based orders are necessary for a primary stimulus
for the LIFFE yen bond futures market," said Tetsuya Dezuka,
deputy general manager of the money market section of New Japan
Securities Co Ltd, one of the most active yen bond brokers in
London.
    Healthy growth of yen bond futures markets depends
basically on substantial liquidity in cash yen bond markets
overseas and on the yen becoming attractive to traders there,
dealers said.
    Outstanding yen cash bonds worldwide stand at around
140,000 billion yen, with most held in Japan, they said.
    An agreement between CBOT and LIFFE in early February on
mutual settlements is expected to link U.S. Treasury bond
futures trading in London and Chicago, enabling a continuous
12-hour session, bond managers here said, adding the move was
made with yen bond futures trading in mind.
    LIFFE is preparing for an early listing of yen bond futures
after receiving approval from Japan's Finance Ministry last
December.
    But futures markets will never take root unless they are
backed by substantial liquidity in cash bond markets, dealers
said.
    Daily transactions in the London yen cash bond market now
stand at 200 to 300 billion yen, but the extent of investor-
linked transactions is unknown, securities bond managers said.
    "Japanese corporations have been actively setting up their
financing companies in London, suggesting they increasingly are
engaging in, not only fund raising, but management there,"
Dezuka said.
    The steep increase in the number of branches of Japanese
securities houses in London and the growing numbers of U.S. And
U.K. Brokers coming to Tokyo has helped the London market's
growth, dealers said.
    Internationalisation of the yen is also likely to be
promoted by yen bond trading in Chicago and New York later this
year, securities managers said.
    The recent removal of a key regulatory obstacle by the U.S.
Securities and Exchange Commission will allow the CBOT to apply
to the Commodity Futures Trading Commission for a yen bond
futures contract, they said.
    The ruling removed a regulation which prohibited trading
futures of designated foreign government debt securities not
located in the issuing country.
    Fundamental Brokers Inc, a major U.S. Brokers' broker, has
decided to launch yen bond broking on its display system in New
York as early as April.
    CBOT's start of an evening session, planned for the end of
April, will also multiply yen bond futures trading, a Nomura
Securities Co Ltd bond manager said. But there are still
obstacles to trading on the London market.
    "Problems concerning cash bond delivery and clearing are
major obstacles for an early launching at LIFFE," said Koki
Chiyojima, deputy general manager of Nikko Securities Co Ltd's
bond administration division.
    Nikko Securities Co Ltd, one of the big four Japanese
securities houses, is responsible for corresponding with LIFFE
on these matters.
    Japan's Finance Ministry will start issuing bonds with
coupon payment of either March and September, or June and
December from April 1, matching futures delivery months.
    The ministry now pays coupons in January, June, July and
December. When delivery months and coupon payments do not
match, a 20 pct withholding tax is imposed on interest earned
by non-resident bond holders, a deterrent to LIFFE, securities
managers said.
    LIFFE is likely to wait until the outstanding amount of
bonds with matching months increases to over several billion
yen, bond managers said.
    These bonds will be used for deliveries, as they are
expected to be the cheapest deliverable issues due to low
interest rates, they said.
    Market participants here expect a clearing organisation to
be set up by the time they have substantial deliverable cash
issues, making overseas listings probable in the latter half of
1987.
 REUTER
