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.