TOKYO EXCHANGE'S US T-BOND CONTRACT FAILS TO WOO TRADERS

TOKYO EXCHANGE'S US T-BOND CONTRACT FAILS TO WOO TRADERS

The Tokyo Stock Exchange's first U.S. Treasury bond futures contract expires Tuesday, ending three months of near neglect and raising questions about the viability and necessity of the financial instrument here.

A TSE official said trading of T-bond futures on the exchange so far was below their expectations at the launch of the product. June has been the only active month.An average of about 10,000 March futures contracts are traded during the night session on the Chicago Board of Trade and the TSE was hoping for a daily

average of about 4,000 contracts, or a little under a half, he said.

The March contract got off to a roaring start Dec. 1 with ''celebratory" trading to mark the launch of a new instrument, boosting trading volume to 54,214 contracts, according to TSE data.

After that, however, volume quickly dwindled to a daily average of 6,699 contracts for December, 2,790 for January and 2,838 for February.

By comparison, trading of the T-bond futures during the CBT night session averaged 153,410 contracts in December, 341,183 in January and 286,050 in February, according to CBT figures.

The official said the lack of active trading in the cash U.S. Treasuries market here was mainly to blame for the sparse interest in the TSE's futures contracts. Without an active cash market, there's no need to trade futures.

The idea to create a futures contract to be traded on the TSE was first proposed about three years ago when Tokyo trading volume in cash Treasuries was on the rise, he said. There was thought to be a need for a futures market here to complement the trading in cash Treasuries, he said.

''Now the market environment has changed but there's no guarantee that the present slowdown is permanent. Trading in futures will pick up if the cash market picks up," he said.

With the specter of higher global interest rates hanging over bond markets worldwide, trading in U.S. government securities here has been at a near standstill.

Treasuries traders here have plenty of reasons of their own for the anemic performance of T-bond futures in Tokyo.

With the CBT night session available, there's no point in trading the futures contract on the TSE, especially with its higher commissions, said Hideo Takemura, deputy general manager of the bond marketing department at Yamaichi Securities.

''It's like they (the TSE) decided to give up from the start," Mr. Takemura said of the higher fee structure. Only if the product was Tokyo based, then the exchange might get away with charging a little more than other exchanges, he said.

The CBT's night session runs until 11:30 a.m., Japan Standard Time, overlapping the morning session of the TSE.

The TSE is aware that it costs more to trade futures on the TSE than on the CBT but it is still unclear whether that is a real issue for T-bond futures here, said the official.

The official also said the TSE never intended to compete head-on with the CBT, but to compliment trading during its night session.

''The CBT is the mother market for T-bond futures and they are traded on U.S. news and interest rate movements" and it is only natural that trading is more active there, the official said.

But there are obstacles to the TSE's T-bond futures playing even a complimentary role to the CBT's instrument, chief among them the lack of mutual offset between the two exchanges.

Lack of mutual offset means that an instrument traded on one exchange cannot be settled on the other.