State Street Global Advisors has introduced a new fixed income ETF in Europe providing exposure to Treasury bonds issued by the Chinese government.
The fund becomes the cheapest ETF in Europe to provide exposure to bonds issued by the Chinese government.
The SPDR Bloomberg Barclays China Treasury Bond UCITS ETF (SPP8 GY) has been listed on Xetra.
Further listings on London Stock Exchange in US dollars (CHNT LN) and pound sterling (CHGT LN) and on Borsa Italiana in euros (CHNT IM) are expected in the near future.
The fund is linked to the Bloomberg Barclays China Treasury 100BN Index which measures the performance of fixed-rate, renminbi-denominated Treasury bonds traded in the China interbank bond market.
Eligible issues must have a minimum CNY 100bn amount outstanding and a remaining time to maturity of at least one year.
The index is rebalanced on a monthly basis.
As of the end of September, the index contained 51 issues and was exhibiting a yield-to-worst of 2.76% and an effective duration of 6.23 years. China currently holds a credit rating of A1, considered to be ‘upper medium grade’.
The fund may appeal to investors searching for increased yield – Chinese bonds provide a yield pick-up of circa 195 basis points versus global Treasuries (based on the Bloomberg Global Aggregate Treasury Index) – without venturing into junk bond territory. It may also serve as a portfolio diversifier as Chinese bond yields have historically exhibited a near-zero correlation with US, German, and Japanese government bonds.
Chinese bonds are also supported by ongoing index inclusion programmes, with onshore Treasury bonds having been included in the Bloomberg Global Aggregate Bond Index and Bloomberg Emerging Market Local Currency Government Index since 2019, and the JP Morgan GBI Emerging Market Index family since 2020.
More recently, commencing 31 October 2021, FTSE Russell has begun to include Chinese bonds in its FTSE World Government Bond Index. Exposure to China will be added incrementally over 36 months, equating to $4.5 billion in monthly inflows, according to FTSE Russell estimates, providing an obliging tailwind for investors.
The fund comes with an expense ratio of 0.19%. Income is accumulated.
The fund enters an increasingly crowded field with BlackRock, Goldman Sachs, DWS, KraneShares, and LGIM all offering ETFs either targeting Chinese Treasuries exclusively or combining government and policy bank bonds.
The iShares China CNY Bond UCITS ETF (CNYB LN) is by far the largest of these, having grown its assets under management from $1bn in August 2020 to more than $13bn as of 11 November. CNYB comes with an expense ratio of 0.35%.
The new SSGA SPDR fund becomes the least expensive in the space, as measured by TER. The next cheapest is the $780m Goldman Sachs Access China Government Bond UCITS ETF (CBND LN) which has an expense ratio of 0.24%.