Global Bond ETF Investors Eye China Exposure

Global bond ETF investors that track the benchmark Bloomberg Barclays Global Aggregate Index may soon have exposure to Chinese renminbi-denominated government and policy bank securities.

Bloomberg announced that it will be adding Chinese RMB-denominated debt to its Bloomberg Barclays Global Aggregate Index over a 20-month period starting April 2019, according to a note.

Once fully implemented, local currency Chinese bonds will make up the fourth largest currency component in the Global Aggregate Index, following the U.S. dollar, euro and yen. Based off January 31, 2018 data, the index would include 386 Chinese securities or 5.49% of the $53.73 trillion index.

“Today’s announcement recognizes China’s continued efforts over recent years to enhance access to the world’s third-largest bond market,” Michael Bloomberg, founder of Bloomberg LP and Chair of the Working Group on U.S. RMB Trading and Clearing, said in a note. “It is a testament to China’s firm commitment to financial reforms and the pace of change taking place in its bond market, and another important step for China’s integration with global financial markets.”

Pivotal Development for Global Bond Investors

“Bloomberg’s inclusion of RMB-denominated bonds in the most widely-used fixed income benchmarks represents a pivotal development for investors around the world,” Henry M. Paulson, Co-Chair of The Working Group on U.S. RMB Trading and Clearing, said in a note. “China’s new position in international bond portfolios will pave the way for robust market activity and support continued financial reforms.”

The indexing changes may also translate over to global bond ETFs that track related international Aggregate Indices. For instance, the iShares Core International Aggregate Bond ETF (NYSEArca: IAGG), which tracks the Bloomberg Barclays Global Aggregate ex USD 10% Issuer Capped (Hedged) Index, and the Vanguard Total International Bond ETF (NasdaqGM: BNDX), which tracks the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index, do not include significant exposure to Chinese debt securities.

For more information on the fixed-income market, visit our bond ETFs category.