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.
  

