Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

FTSE Russell Says China to Be Included in Global Bond Index

Published 24/09/2020, 23:12
Updated 25/09/2020, 01:09
© Reuters.

© Reuters.

(Bloomberg) -- Chinese sovereign bonds have won inclusion into FTSE Russell’s benchmark bond index a year after they were rejected.

The index compiler owned by the London Stock Exchange Group (LON:LSE) said the debt would be added to its flagship World Government Bond Index. The inclusion will start in October 2021, according to a statement after U.S. markets closed Thursday.

The inclusion gives foreign investors yet another way to invest in Chinese debt and should prompt inflows into the world’s second-largest bond market. Morgan Stanley (NYSE:MS) said it would probably attract as much as $90 billion from September next year. FTSE Russell becomes the last of the three main index compilers to add Chinese debt after Bloomberg Barclays (LON:BARC) and JPMorgan Chase (NYSE:JPM) & Co. Bloomberg Barclays is owned by Bloomberg News parent Bloomberg LP.

The higher yields on Chinese sovereign bonds have been attractive to investors from around the world given the returns on most notes in developed nations are near zero. China’s rate premium over the U.S. debt is near the highest level on record.

Inflows into the nation’s debt market from abroad have jumped nearly 40% each year since 2017 to a record $383 billion as of the end of June, data from the People’s Bank of China show. Foreigners still account for less than 3% of the $16 trillion market.

When FTSE Russell rejected Chinese debt for inclusion a year ago it cited the need for greater secondary market liquidity, as well as increased flexibility in foreign exchange execution and the settlement of transactions. China has made a number of reforms to its bond market since then, some of them touching on those issues. In April, the index compiler acknowledged that China had addressed calls to increase market accessibility and provided investors with greater currency trading options and improvements to liquidity.

Chinese government bonds have fallen for five straight months, taking the yield to around 3.10%. The notes have been under pressure amid concern about tighter liquidity, a central bank that has avoided cutting interest rates and growing appetite for riskier assets as an economic recovery from the virus pandemic accelerates. The nation’s benchmark CSI 300 Index is trading near the five-year high it reached in July.

Expectations that FTSE Russell would add Chinese bonds to its indexes have helped sentiment for China’s yuan. The currency has surged about 3.5% this quarter, the most in Asia.

©2020 Bloomberg L.P.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.