China is about to hitch FTSE Russell’s flagship international bond index subsequent yr

A Chinese language nationwide flag seen in entrance of Oriental Pearl Tower in Shanghai on September 8, 2019.

Alex Tai | SOPA Photographs | LightRocket by way of Getty Photographs

SINGAPORE — Main index supplier FTSE Russell stated Thursday it’ll add Chinese language authorities bonds to its flagship World Authorities Bond Index from October subsequent yr — a improvement that can convey billions of {dollars} of inflows into China.  

The inclusion — which will probably be China’s third entry into a significant international bond index — comes at a time when buyers are trying to find yield in an setting of ultra-low rates of interest. A number of buyers estimated that at the least $100 billion will move into China after its bonds debut on the FTSE Russell index.

“I believe that is one other necessary landmark in China’s … internationalization of their home monetary markets,” Ben Powell, BlackRock Funding Institute’s chief funding strategist for Asia Pacific, informed CNBC’s “Street Signs Asia” on Friday.

He identified that 10-year Chinese language authorities bonds are yielding round 3% which is “a really excessive quantity within the international context.”

Boosting overseas participation

China’s roughly $16 trillion bond market is the second largest globally, however is under-owned by worldwide buyers.

Pan Gongsheng, deputy governor of the Folks’s Financial institution of China and director of State Administration of Overseas Change, stated in an announcement that worldwide buyers held 2.8 trillion yuan ($410.69 billion) of Chinese language bonds as at finish August. That is lower than 3% of your complete Chinese language bond market.

Chinese language authorities have applied important enhancements to the fastened revenue market infrastructure to develop entry to worldwide buyers.

Becoming a member of the FTSE World Authorities Bond Index might additional improve overseas investor participation within the Chinese language bond market, which may also enhance the yuan, in keeping with Hong Kong-based CSOP Asset Administration. The corporate stated the Chinese yuan would be the fourth largest foreign money within the index, after the U.S. greenback, euro and Japanese yen.

FTSE Russell stated it’ll affirm in March the precise date when Chinese language authorities bonds will debut on its index. Earlier than FTSE, Chinese language authorities bonds had been added to the Bloomberg Barclays World Combination Index and the J.P. Morgan Authorities Bond Index-Rising Markets.

“Chinese language authorities have applied important enhancements to the fastened revenue market infrastructure to develop entry to worldwide buyers,” FTSE Russell stated in an announcement saying its resolution on China.   

These enhancements embrace enhancing liquidity within the bond market, permitting extra alternative of counterparties in overseas change buying and selling, and higher post-trade settlement processes, the corporate added.

— CNBC’s Eustance Huang contributed to this report. 

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