FTSE Russell adds China to influential World Government Bond Index

September 25, 2020.

Russell will include Chinese government bonds in its World Government Bond Index, beginning in October 2021, in a move that could result in up to $140 billion in additional inflows for China. 

The inclusion reflects progress by China toward market reforms and increased access for global investors, FTSE Russell, a global benchmark provider, said Thursday. The start date is contingent on final affirmation of these reforms in March 2021 by members of the FTSE advisory board and other index users. 

FTSE Russell, which is owned by the London Stock Exchange, said that since China was added to the watch list for inclusion in 2018, the country has made significant moves to expand access to international investors, including improving secondary market liquidity, enhancing the foreign exchange market and developing global settlement and custody processes.

China is the world’s second-largest government bond market, with about $16 trillion outstanding, according to FTSE Russell. 

The WGBI measures the performance of fixed-rate, local-currency, investment-grade government bonds, according to FTSE Russell. It comprises sovereign debt from more than 20 countries, denominated in a variety of currencies.

A recent research note from said that inclusion in the index could generate as much as $140 billion in additional inflows for China. 

In a March 2020 interim review, FTSE Russell acknowledged China’s efforts to improve accessibility for outside investors, specifically citing efforts to allow investors to trade FX with three counterparties, as opposed to just one; the ability to choose a longer retirement cycle; flexibility in handling failed trades and more reopenings to help improve secondary market liquidity. Chinese regulators also rolled out new draft rules in early September to make it easier for foreign financial institutions to access the country’s bond market.

China has been liberalizing its bond market during the past few years, and the pace of inflows has picked up quickly, from $30 billion to $50 billion per year in 2016 through 2017, to around $70 billion to $90 billion in 2018. The increase followed news in April 2019 that China would be included in the Bloomberg Barclays Global Aggregate Index. In January 2020, China was included in JPMorgan’s Government Bond Index-Emerging Markets index, leaving the WGBI as the last major holdout.

— Additional reporting by Reece Wallace