The nation's first interest-rate futures contracts were traded yesterday, providing bond traders and investors a new financial tool to hedge against fluctuation in interest rates.
"It is an historical milestone for Taiwan to usher in a scripless-trading bond market," Premier Yu Shyi-kun told a launching ceremony yesterday morning.
The daily traded value of government bonds has exceeded NT$540 billion (US$15.9 billion) while outstanding governmental bonds amount to NT$2.5 trillion in value, Yu said. The futures were created since there is demand for risk hedging, the premier said.
Interest-rate futures are futures contract based on financial instruments such as bank bills of exchange or government bonds.
They can provide traders and investors protection against excessive fluctuations in interest rates.
A futures contract is an agreement to sell or buy a specific security or commodity at a previously agreed price and time.
The plan to launch interest-rate futures for investors was first proposed by President Chen Shui-bian (陳水扁) in late November, as part of the government's measures to further liberalize financial markets.
To encourage participation, Yu yesterday said that the Cabinet has proposed cutting the transaction tax rate on futures of various terms, and on options products, by 20 to 60 percent, pending legislative approval.
The transaction tax rate for newly launched interest-rate futures contracts is officially earmarked at NT$1.25 per NT$1 million, Yu said.
On the first day of trading yesterday, March 10-year bond futures opened at NT$114.5 per contract and closed at NT$113.635, with a total of 666 contracts traded, according to the TAIFEX.
The yield on the benchmark 2.875 percent bond maturing in December 2013 rose 13.4 basis points to 2.75 percent.
The yield on Taiwan's 10-year government bonds has risen 1.3 percentage points since falling to a record low of 1.32 percent on June 16 last year.
This means that government bonds achieved their first annual increase in three years, according to a Bloomberg report.
The 10-year-bond futures are the first non-stock related futures contract offered by the Taiwan Futures Exchange (TAIFEX).
The exchange already offers five futures and two options products that are linked to Taiwanese stocks.
The launch was attended by various officials. Minister of Finance Lin Chuan (
The officials also oversaw the launch of the nation's first central securities depository center (
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