Chinese government debt added to key bond index

BEIJING (AFP) – Chinese government debt is set to be included on a key global bonds index, which could see tens of billions of dollars of foreign investment in the country’s increasingly internationalised financial markets.

The move by FTSE Russell comes as trading in China becomes an increasingly controversial move in Washington as relations between the superpowers grow increasingly fraught.

But analysts said the attraction of higher yields – the yield on 10-year Chinese government bonds is 2.4 percentage points higher than United States (US) Treasuries – and a relatively stable currency have made the country an attractive prospect for investors.

Inclusion in the World Government Bond index, which could begin next October if approved, means CGBs will be a must-have asset for investment giants such as pension funds desperate for good returns as the global bond market is battered by the virus pandemic.

Pan Gongsheng, Deputy Governor at the central People’s Bank of China, said international investments in the Chinese market had grown more than 40 percent over the past three years, with CNY2.8 trillion (USD410 billion) of Chinese bonds currently held by international investors.

Goldman Sachs said inclusion could see up to USD140 billion flood into the debt market.

AxiCorp strategist Stephen Innes said the move was “big news” which would open up China’s bond market to “a broader band of passive investors”.

FTSE Russell, which is owned by the London Stock Exchange, decided against including Chinese debt in the index last year owing to several worries such as liquidity and the settlement of transactions, but it said the concerns had been addressed.