Index provider Bloomberg has confirmed that Chinese RMB-denominated government and policy bank securities will be added to the Bloomberg Barclays Global Aggregate Index starting April 2019 and phased in over a 20 month period.
Bloomberg Chairman Peter T. Grauer. (© David Cross)
The index is the preeminent barometer of the global fixed income market and the underlying reference benchmark for a number of sizeable ETFs, including the $2.4bn iShares Core Global Aggregate Bond UCITS ETF (AGGG LN), which will soon start to include Chinese bonds.
Bloomberg’s decision to include local currency Chinese bonds within the global index reflects the completion of several planned operational enhancements that were implemented by the People’s Bank of China (PBoC), Ministry of Finance and State Taxation Administration.
These include the implementation of delivery vs. payment settlement, the ability to allocate block trades across portfolios, and clarification on tax collection policies.
When fully accounted for in the Global Aggregate Index, local currency Chinese bonds will be the fourth largest currency component following the US dollar, euro and Japanese yen.
The index would include 363 Chinese securities and represent 6.03% of a $54.07 trillion index upon completion of the phase-in (based on data as of 24 January 2019).
“Today’s announcement represents an important milestone on China’s path towards more open and transparent capital markets, and underscores Bloomberg’s long-term commitment to connecting investors to China,” said Bloomberg Chairman Peter T. Grauer. “With the upcoming inclusion of China in the Global Aggregate Index, China’s bond market presents a growing opportunity for global investors.”
“It’s a pivotal time in the development of China’s markets and inclusion in our Global Aggregate Index is significant for facilitating Chinese market access for global investors,” added Steve Berkley, Global Head of Bloomberg Indices. “Our phased approach to inclusion is designed to give investors ample time to prepare for what we believe will be a positive impact on the investment community.”
In addition to the Global Aggregate Index, Chinese RMB-denominated debt will be eligible for inclusion in the Global Treasury and EM Local Currency Government Indices starting April 2019.
Bloomberg will create ex-China versions of the Global Aggregate, Global Treasury and EM Local Currency Government Indices for index users who wish to track benchmarks that exclude China.
Bloomberg can also create customized versions of the indices to underlie new investment products such as ETFs.