Chinese Bonds on Track for Inclusion in More Global Indices

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Domestic analysts expect a broader range of Chinese bonds to soon be included in a greater number of overseas indices following their incorporation into the Bloomberg Barclay Global Aggregate index.

Bloomberg announced in January that the inclusion of Chinese bonds in the Bloomberg Barclays Global Aggregate Index would commence in April, in move which will see the gradual addition of 364 domestic Chinese bonds over the upcoming 20 months.

This includes 159 bonds issued by the Chinese government, as well as bonds from China’s policy banks including the China Development Bank (102), the Agricultural Development Bank of China (58) and the Export-Import Bank of China (45).

The move is expected to draw around USD$150 billion in overseas funds into the Chinese bond market, which is currently the world’s third largest after US and Japan with an estimate scale of around $13 trillion.

Domestic analysts expect Chinese bonds to soon be included in other leading global indices, including the FTSE World Government Bond Index (WGBI) and the J.P. Morgan GBI-EM Global Diversified Index for local currency government bonds.

“The broadening of investment channels and beneficial policies will gradually make renminbi-denominated bonds an appealing target for global mainstream bond indices, including the GBI-EM GD and the WGBI,” said Joseph Liang Zhiwen (梁治文), for JPMorgan Chase China, to state-owned media.

JPMorgan is currently mulling whether or not to include Chinese bonds in the GBI-EM GD index, with Liang indicating that the bank will conduct surveys of investor sentiment in time for its index management meeting scheduled for the summer.

“We believe that China will continue to open the market in accordance with the right direction, as well as hope that we can obtain positive investor feedback this year.”

FTSE Russell is expected to officially announce in September whether or not it will include Chinese government bonds in its WGBI, as well as potentially conduct assessments of Chinese debentures prior to the end of the year.

JPMorgan’s global index team expects that the inclusion of Chinese bonds in the three main benchmark fixed income indices (GBI-EM GD, Global AGG and WGBI) will bring as much as $300 billion in overseas funds to the domestic bond market.

An official from the Chinese central bank said that it would continue to push for the inclusion of Chinese bonds in key international bond indices, as well as “appropriately” drive opening of the bond market following the entry of S+P Global Ratings into the domestic market and attract more international credit agencies to develop business in China.

The People’s Bank of China (PBOC) official said that it would also research and unveil bond index products such as bond ETF’s; research and implement the removal of restrictions on foreign institutions participating in repurchase transactions, and vigorously drive the usage of reminbi derivatives products.

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