China is about to affix FTSE World Authorities Bond Index in October 2021
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The inclusion — which will likely be China’s third entry into a significant international bond index — comes at a time when traders are looking for yield in an atmosphere of ultra-low rates of interest. A number of traders estimated that no less than $100 billion will stream into China after its bonds debut on the FTSE Russell index.
“I feel 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, instructed CNBC’s “Road Indicators 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 international participation
Pan Gongsheng, deputy governor of the Folks’s Financial institution of China and director of State Administration of Overseas Change, mentioned in an announcement that worldwide traders held 2.8 trillion yuan ($410.69 billion) of Chinese language bonds as at finish August. That is lower than 3% of the complete Chinese language bond market.
Becoming a member of the FTSE World Authorities Bond Index might additional improve international investor participation within the Chinese language bond market, which will even increase the yuan, in accordance with Hong Kong-based CSOP Asset Administration. The corporate mentioned the Chinese language yuan would be the fourth largest forex within the index, after the U.S. greenback, euro and Japanese yen.
FTSE Russell mentioned it’s going to verify 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 International Mixture Index and the J.P. Morgan Authorities Bond Index-Rising Markets.
“Chinese language authorities have carried out important enhancements to the fastened earnings market infrastructure to increase entry to worldwide traders,” FTSE Russell mentioned in an announcement asserting its resolution on China.
These enhancements embody enhancing liquidity within the bond market, permitting further selection of counterparties in international trade buying and selling, and higher post-trade settlement processes, the corporate added.
— CNBC’s Eustance Huang contributed to this report.