ôWe are very active in the secondary market, but for the first time now we have access to participate in the primary market. Underwriting government bonds also gives us better information and good assessment of the market environment,ö says Carl Walter, chief executive of JPMorgan Chase Bank China. ôMoreover, there are very few foreign financial institutions that are primary dealers and this is an indication that the capital markets will continue to open. Our business here is based on that.ö
Over the past few years, JPMorgan has expanded its trading capacity in local currency products, foreign exchange and risk-management instruments.
ôUp until three years ago, there were no products in the Chinese domestic market that enabled the hedging of foreign exchange or interest rate risk,ö continues Walter. ôBut lately we have seen the growth of an interest-rate swap market, and we expect financial futures products to be launched soon. Our operation is also growing rapidly and will be a significant contributor to JPMorganÆs revenues in China and elsewhere in the region over the next few years.ö
Walter comments that the yield curve, which is the basis for the pricing of bonds and swaps, is a work in progress and a deep government bond market is the foundation of that. As foreign institutions become more involved, so will the bond market evolve and the interest rate environment will gradually become more relaxed.
JPMorgan is the first US bank to be appointed primary dealer. Other dealers of government bonds are HSBC, which was appointed three years ago, and Standard Chartered which was appointed alongside JPMorgan.