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JPMorgan to phase China govt bonds into some benchmark bond indexes

Hong Kong

JPMorgan Chase & Co will start a phased inclusion of Chinese government bonds into some of its benchmark indexes, potentially ushering in a fresh wave of inflows into the world's second-largest bond market.

China's weight will be capped at 10 per cent of the GBI-EM global diversified and narrow diversified indexes. The inclusion will begin on Feb 28, 2020, the bank said in a statement on Wednesday. Goldman Sachs Group analysts earlier estimated that such a move could lead to about US$3 billion of inflows into China's bond market a month.

China has steadily opened access to its onshore debt, and in April the country's domestic bonds began a phased-in inclusion in the Bloomberg Barclays Global Aggregate Index. Bloomberg LP is the owner of that bond index, and also owns Bloomberg News.

A third index provider, FTSE Russell, is scheduled to announce its decisions regarding changes in its WGBI gauge later this month. Goldman calculated that FTSE Russell inclusion of Chinese bonds could see US$6 billion to US$7.5 billion a month in extra inflows from overseas. Last month, overseas investors bought 25 billion yuan (S$4.8 billion) of onshore Chi-nese bonds, according to ChinaBond data - even as the yuan posted its biggest monthly fall since the 1990s.

Some US$202 billion of assets track the GBI-EM global diversified benchmark, according to JPMorgan. China inclusion will take 10 months, with a one per cent addition per month, the bank said.

JPMorgan will construct indexes that exclude China "to provide investors with alternatives as required", the bank said.

"The pace of capital inflows into the onshore bond market will accelerate, with more passive funds buying the debt and some others betting on a narrowing of the now wide China-US interest-rate gap," said Zhaopeng Xing, a markets economist at Australia & New Zealand Banking Group Ltd. BLOOMBERG