FTSE Russell: The value of Chinese government bonds highlights the probability of a significant power in the WGBI will rise

Reporter Zhang Qinfeng Trainee reporter Lianrun China Securities News · China Securities Network

On October 29, China's government bonds were officially included in the FTSE World Treasury Bond Index (hereinafter referred to as "wgbi"). On November 3, Li Zhanying, senior director of FTSE Russell and head of product sales and customer relations in the Asia-Pacific region (excluding Japan), revealed that wgbi is expected to include 50 Chinese government bonds, with a total bond amount of about 10 trillion yuan (about 1.6 trillion US dollars), and after the completion of the inclusion, it is expected that the weight of Chinese government bonds in wgbi will reach 5.97%, ranking fifth, and the probability of major future ownership will rise.

Speaking of the selection criteria, Li Zhanying introduced that the maturity of the bond is at least 1 year. In terms of the minimum issuance size, the bond size of bonds issued in 2020 or later shall not be less than 35 billion yuan, and the issuance scale of bonds issued before 2020 shall not be less than 100 billion yuan. The composition of the index consists of book-entry fixed-rate government bonds, excluding zero-coupon bonds, savings bonds, bonds with maturities of more than 30 years from the date of issuance and bonds issued before 2005. In addition, index rebalancing is made once a month and is carried out on the last business day at the end of the month.

Li Zhanying said that the FTSE World Treasury Bond Index has a large number of passive investors, and for these investors, the tracking error should be as low as possible, so there are higher requirements for the liquidity of index bonds. Most of the 50 bonds selected will be issued from 2018 to 2021, accounting for 90%, with a large scale of issuance, high liquidity, and the overall liquidity of the index is better.

Li Zhanying said that after China's national debt is fully included, it will surpass Germany to become the fifth most weighted sovereign bond in the WGBI.

It is worth noting that in March this year, FTSE Russell had expected that China's government bonds would account for 5.25% of the wgbi after full inclusion, and now it has become 5.97%.

Li Zhanying explained that the FTSE World Treasury Bond Index is a market value-weighted index, and the larger the volume, the higher the proportion. Given that China's government bonds are growing faster than the government bond markets of some of the countries with a relatively large proportion of the current index, it is foreseeable that this proportion will change further in the future. At the same time, the proportion is also related to the RMB exchange rate, and if the RMB exchange rate continues to appreciate, the proportion will also rise. She predicts that in three years, the probability of Chinese government bonds in the wgbi will rise, and the role of global asset allocation will become more and more prominent.

After the inclusion of Chinese government bonds, she expects the yield of WGBI to rise from 0.73% to 0.85%. At the same time, the duration will be shortened. "China's bonds have high ratings, high yields, low credit risk, low yields and low volatility in the foreign exchange market, and the value of Chinese government bonds is prominent in the context of low global yields, which is very attractive to investors." In addition, China's bond market has a low correlation with other bond markets, which can diversify investment risks and is quite popular with investors. Li Zhanying said.