ANALYSIS: HSBC sees increasing use of RMB derivatives for hedging

Clement Cordier, head of derivatives clearing services, markets and securities services, Asia at HSBC, said that investment-related and corporate needs are driving the use of RMB derivatives for hedging.

“In the investment space, RMB derivatives are primarily used to respond to the depth of the underlying bond and rates market, and to enable hedging within a centrally cleared environment,” said Cordier.

This approach offers investors leverage and greater certainty regarding margin requirements and counterparty risk. Another important factor is collateral.

“With China government bonds (CGBs) and policy bank bonds increasingly recognised as high-quality collateral offshore, investors can hold RMB assets and manage duration and rate risk through derivatives - without tying up significant additional capital,” said Cordier. On the corporate side, global companies are making greater use of RMB, for example in settling cross-border trades, drawing down trade loans, and engaging in outbound and inbound investments.

“This trend is expected to accelerate, not only among Chinese firms but also local companies becoming more comfortable with RMB transactions,” said Cordier.

As RMB usage grows, companies will require more RMB hedging solutions from banks to manage exposures such as foreign exchange, interest rates, and funding costs.

Cordier noted that infrastructure for RMB derivatives has progressed in a series of practical steps. Central clearing is more accessible, collateral arrangements are more flexible, and onshore-to-offshore links have strengthened.

“For many clients, being able to clear RMB alongside other rates positions has been a key milestone,” he said. “Further enhancements to trading, settlement and collateral use are gradually expanding the strategies that can be implemented in RMB.”

As CGBs are used more widely as collateral and as futures and hedging tools develop, Cordier said that the overall set-up is becoming closer to what investors are accustomed to in other established rates markets. Looking at policies that can help promote even more interest in RMB derivatives, he said that generally, there’s a focus on clear derivatives rules, strong netting and close‑out provisions, and broad recognition of RMB government bonds as high‑quality collateral.

Further down the line, he said that investors also see value in speeding up work on Chinese government bond futures in Hong Kong—ideally with both cash‑settled and physically‑settled contracts—while keeping a phased approach to opening onshore futures access to offshore investors.

“A measured rollout would support stable liquidity and give firms time to adapt their systems and controls,” he added.

Looking at recent measures from the SGX Group to expand its Japanese government bond futures products, Cordier said that additional bond futures in Asia, linked to Japanese, Indian and other sovereign curves give investors more precise tools to manage local‑rate risk where they already hold those government bonds and they fit naturally into regional and global rate‑trading strategies.

“As work on CGB futures and related products advances, investors will have a wider menu of Asian rate hedging tools,” said Cordier.

A panel of experts has said the over-the-counter Swap Connect platform has provided a boost to the renminbi-denominated interest rate swaps market, with some calling for the development of bond futures to harness demand.

According to China’s Futures Association’s latest figures for 2025, the country’s futures market saw trading turnover reaching RMB 766.25 trillion (£81.6 billion), a 24% year on year increase.