Explainer: Why China’s Inclusion In Global Bond Benchmarks Matters

www.oann.com | 6/21/2013 | Staff
idkwatitis (Posted by) Level 3
HONG KONG (Reuters) – China’s yuan-denominated onshore bonds will be begin to be included in the Bloomberg Barclays Global Aggregate Index from Monday, and two other competing indices are likely to soon follow suit.

The milestone inclusion is expected to draw billions of foreign dollars into China’s $13 trillion bond market, the world’s third largest.

Investors - World

Here’s why investors across the world are watching this closely:

WHICH INDEX PROVIDERS ARE ADDING CHINESE BONDS AND WHEN?

Years - Anticipation - Benchmark - Bond - Indexes

After years of anticipation, benchmark global bond indexes are finally incorporating China, drawing many investors – some for the first time – to this vast market.

Bloomberg Barclays Global Aggregate Index on April 1 will begin adding Chinese government and policy bank bonds over 20 months. The inclusion will eventually take China’s weight in the index to 6.03 percent, Bloomberg said in January.

Government - Bonds - Watchlist - Bonds - FTSE

Chinese government bonds are also on a “watchlist” of bonds to join FTSE Russell’s World Government Bond Index (WGBI), with a review set to take place in September, the index provider has said.

China was put on a watchlist for the J.P. Morgan Emerging Markets Government Bond Index Global Diversified, the other major bond benchmark, in 2016. JP Morgan will survey investor feedback on inclusion at its annual meeting this summer, a bank spokeswoman said.

NOW

WHY NOW?

Analysts have long argued China’s bond market, the world’s third largest, is too big to ignore. But restrictions have prevented many investors from tapping Chinese bonds.

China - Years - Access - Easier - Investors

China has over the years made access easier for foreign investors, most recently by launching the Bond Connect scheme in 2017, which allows investors to buy and sell onshore bonds via Hong Kong.

In the past year, authorities added two key capabilities: delivery versus payment and block trades, common features in financial markets elsewhere. Beijing also clarified how it will tax...
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