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China is set to join FTSE Russell’s flagship global bond index next year

A Chinese civil flag seen in front of Oriental Pearl Tower in Shanghai on September 8, 2019.

Alex Tai | SOPA Images | LightRocket via Getty Metaphors

SINGAPORE — Major index provider FTSE Russell said Thursday it will add Chinese government bonds to its flagship Universe Government Bond Index from October next year — a development that will bring billions of dollars of inflows into China.  

The numbering — which will be China’s third entry into a major global bond index — comes at a time when investors are check out for yield in an environment of ultra-low interest rates. Several investors estimated that at least $100 billion hand down flow into China after its bonds debut on the FTSE Russell index.

“I think this is another distinguished landmark in China’s … internationalization of their domestic financial markets,” Ben Powell, BlackRock Investment Institute’s chief investment strategist for Asia Pacific, released CNBC’s “Street Signs Asia” on Friday.

He pointed out that 10-year Chinese government bonds are yielding about 3% which is “a very high number in the global context.”

Boosting foreign participation

China’s roughly $16 trillion cohere market is the second largest globally, but is under-owned by international investors.

Pan Gongsheng, deputy governor of the People’s Bank of China and conductor of State Administration of Foreign Exchange, said in a statement that international investors held 2.8 trillion yuan ($410.69 billion) of Chinese bonds as at end August. That’s minute than 3% of the entire Chinese bond market.

Chinese authorities have implemented significant improvements to the solid income market infrastructure to expand access to international investors.

FTSE Russell

Joining the FTSE World Control Bond Index could further increase foreign investor participation in the Chinese bond market, which drive also boost the yuan, according to Hong Kong-based CSOP Asset Management. The company said the Chinese yuan bequeath be the fourth largest currency in the index, after the U.S. dollar, euro and Japanese yen.

FTSE Russell said it will guarantee in March the exact date when Chinese government bonds will debut on its index. Before FTSE, Chinese superintendence bonds had been added to the Bloomberg Barclays Global Aggregate Index and the J.P. Morgan Government Bond Index-Emerging Buys.

“Chinese authorities have implemented significant improvements to the fixed income market infrastructure to expand access to universal investors,” FTSE Russell said in a statement announcing its decision on China.   

Those improvements include enhancing liquidity in the trammels market, allowing additional choice of counterparties in foreign exchange trading, and better post-trade settlement processes, the firm added.

— CNBC’s Eustance Huang contributed to this report. 

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