China bonds to be added to $54 trillion Bloomberg index

RenminbiThe influence of China’s currency is continuing to grow from a global standpoint after it was confirmed that Chinese government renminbi bonds and policy bank securities will be added to the Bloomberg Barclays Global Aggregate Index.

The inclusion is scheduled to begin in April 2019 and it is expected to be ushered in over a 20-month period, the financial information provider said in a statement. Once completed, the index will include 363 Chinese securities, representing 6.03% of the $54.07 trillion index.

The yuan is set to become the fourth largest currency component behind the US dollar, euro and Japanese yen.

Including bonds in the benchmark will have consequences for global investors as passive funds that track the index will hold Chinese government debt once added.

Peter T Grauer, chairman of Bloomberg said the move is “an important milestone on China's path towards more open and transparent capital markets”, and that the country’s bond market is an area of “growing opportunity for global investors”.

Quentin Fitzsimmons, Global Aggregate Bond portfolio manager at T. Rowe Price said index inclusion sends a strong message given that “China wants to demonstrate its long-term credibility at the top of the table of the global financial and economic powers”.

Benefits include further diversification away from the big countries like the US and Japan and also helps the index look more attractive from a yield standpoint, Fitzsimmons added. T. Rowe Price manages more than $10 billion of assets in global aggregate bond strategies, it said in a statement.

The latest move comes after China’s central bank gave S&P Global the green light to rate its domestic bonds in a first for a company wholly owned by an international credit ratings agency.

The New York-based company has been authorised to rate issuers and issuances from financial institutions and corporates, structured finance bonds and renminbi-denominated bonds from foreign issuers, also known as Panda bonds.

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