FTSE Russell said on Friday in Asia that it will start adding Chinese sovereign bonds into its bond benchmarks from October 2021, a year after the British index compiler decided against such a move.
The decision follows one by JPMorgan Chase, which earlier this year began including Chinese government debt in its own benchmarks in a phased manner. Bloomberg Barclays, another major index compiler, had begun that process in April 2019.
At about $16 trillion in outstanding securities, China is the world’s second largest bond market.
FTSE Russell, which is owned by the London Stock Exchange, said Chinese authorities have implemented “significant improvements” to the fixed income market infrastructure since the securities were added to the Watch List for FTSE World Global Bond Index (WGBI) inclusion in 2018.
They have improved secondary market bond liquidity, enhanced foreign exchange market structure and developed global settlement and custody processes since then, with additional reforms including the facility for international investors to register at legal entity level when opening accounts now imminent, FTSE Russell said.
“The Chinese authorities have worked hard to enhance the infrastructure of their government bond market,” Waqas Samad, chief executive at FTSE Russell said in a statement. “Subject to affirmation in March 2021, international investors will be able to access the second largest bond market in the world through FTSE Russell’s flagship WGBI.”
Pan Gongsheng, deputy governor of the People’s Bank of China, said international investments in the onshore market have grown by 40% per annum over the last three years, with global investors holding RMB2.8 trillion ($411 billion) of Chinese bonds as at the end of August 2020.
“PBOC will continue to work with industry participants to further enhance relevant regulations and to provide a more friendly, convenient investment environment for investors domestically and abroad,” Pan said.
The inclusion will potentially bring inflows of around $150 billion, or more than $12 billion a month over a 12-month period, into onshore Chinese government bonds, supporting both bond returns and the renminbi, Chinese money manager CSOP Asset Management estimated in a report.
“If fully included, RMB will become the fourth largest currency in WGBI index and the WGBI yield will rise and duration will decrease” based on data as of September 23, it said.
