SHANGHAI: FTSE Russell’s World Government Bond Index (WGBI) will become the last major global index to include Chinese government bonds (CGBs) from Friday, marking a milestone in foreign participation in the world’s second-largest bond market.
Here is what you need to know about Chinese bonds’ inclusion into three major bond indexes:
FTSE RUSSELL WORLD GOVERNMENT BOND INDEX (WGBI)
HSBC estimates China’s weight in WGBI will be about 5.9%, which would drive $130 billion of index-related foreign inflows into CGBs over their 36-month inclusion period.
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Despite their inclusion in the index, Japan’s Government Pension Investment Fund (GPIF) said in September it would not invest in Chinese government bonds due to what it said were settlement and liquidity issues.
FTSE Russell said in March that it had slowed down the inclusion period following feedback from market participants, which included Japanese investors’ concerns around settlement and liquidity.
HSBC said the impact of GPIF’s decision would be limited, resulting in estimated foregone inflows of $15 billion over the inclusion period, though other institutional investors in Japan might follow GPIF’s move.
In February 2020, nine Chinese local currency bonds began a 10-month process of entering JP Morgan’s Government Bond Index Emerging Markets (GBI-EM) suite, eventually giving China a 10% weighting in the flagship Global Diversified Index.
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