Malaysia to launch bond futures contract

Malaysia Derivatives Exchange (MDEX) has announced that it will launch a five-year government bond futures contract at the end of March, the first such contract to be issued in Malaysia.

The exchange currently offers three-month Klibor (Kuala Lumpur interbank offered rate) futures, as well as futures and options on the Kuala Lumpur stock exchange’s composite index, but a steady increase in the size of the corporate bond market has boosted the need for interest rate hedging instruments, according to the exchange.

"We believe the five-year Malaysian government security futures will be used to hedge long-dated interest rate commitment, including papers,” commented Encik Abdul Jabbar Abdul Majid, executive chairman of MDEX. “It will also be a transparent benchmark yield for the investing community.”

The contract will have a notional size of MYR100,000 ($26,315), and will be based on a basket of eligible government bonds, each with a minimum size of MYR500 million and 4.5-5.5 years to maturity.

To ensure liquidity, MDEX began a series of incentive schemes last year to attract market makers ahead of the launch. So far, four market makers have been approved, with a fifth application pending approval, the exchange said.