The internationalization of China's $8 trillion bond market continues at a steady pace on the back of tangible efforts to liberalize the onshore investment environment. Onshore government bonds will now be included in a selection of major regional indexes, such as Citigroup's Emerging Markets Government Bond Index (EMGBI), Asian Government Bond Index (AGBI) and Asia Pacific Government Bond Index (APGBI).
On July 3 China proceeded with the further opening of the mainland bond market via the long-awaited 'Bond Connect' programme, a Hong Kong link that provides foreign investors access to the country's $9 trillion debt market, even if they lack an onshore account. The People's Bank of China (PBOC) and Hong Kong Monetary Authority (HKMA) said that during the programme's early stages flows would only go northbound from Hong Kong to the mainland.
China's anti-leverage campaign continues. In May, the five-year sovereign yield was higher than that on ten-year debt, the first time the curve has inverted since 2006. At the same time, a number of stringent new regulatory measures introduced since the appointment of a new senior regulator in March, coupled with rising short term borrowing costs and growing fears of defaults, have increased the propensity for domestic banks to off-load short term bonds. In aggregate, Chinese corporate and government bond prices have decreased about 6 percent in the first half of 2017.
International appetite for Chinese debt may be diminishing, according to some media reports. For example, analysis of offshore RMB-denominated bond funds compiled by Morningstar reveals total assets under management shrank by roughly half in the past year to about $11.6 billion.
© 2017 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, “FTSE TMX”) and (4) MTSNext Limited (“MTSNext”). All rights reserved.
FTSE Russell® is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. “FTSE®”, “Russell®”, “FTSE Russell®” “MTS®”, “FTSE TMX®”, “FTSE4Good®” and “ICB®” and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX.
All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE Russell Indexes or the fitness or suitability of the Indexes for any particular purpose to which they might be put.
No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this communication should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence from FTSE, Russell, FTSE TMX, MTSNext and/or their respective licensors.