China Securities to Join Bloomberg Barclays Global Aggregate Index

Chinese yuan-denominated government and policy bank securities will be added to the Bloomberg Barclays Global Aggregate Index starting 2019, Bloomberg said in a statement on Friday.

According to the statement, the securities will be included as part of the index once the People’s Bank of China (PBoC) and China’s Ministry of Finance proceed with the implementation of some operational improvements.

The criteria for inclusion on the Global Aggregate Index require that the debt market of the respective currency render the classification of investment grade. Additionally, the currency itself has to be tradeable without restriction, encompass the capacity for conversion, and include hedging capabilities.

According to Bloomberg, the PBoC has consistently enhanced RMB-denominated securities, which have since been able to reach a level that meets the index’s requirements.

“Today’s announcement recognizes China’s continued efforts over recent years to enhance access to the world’s third-largest bond market,” Michael Bloomberg, the founder of Bloomberg LP, said. “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,” he added.

However, Bloomberg also says that the PBoC is still required to further enhance the securities, in order to also improve investor confidence, as well as enhancing market accessibility.

The specifics of these enhancements include gaining the ability to distribute block trades across multiple portfolios, implementing a delivery vs. payment settlement system, and underlining the policies pertaining to tax collection.

Bloomberg already noted that these enhancements must be implemented prior to the inclusion of yuan-denominated securities into the Bloomberg Barclays Global Aggregate Index. Furthermore, a delay in securing these enhancements could consequently cause the inclusion of the aforementioned Chinese securities into the index to be delayed as well.

“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.

China’s new position in international bond portfolios will pave the way for robust market activity and support continued financial reforms.

Once the securities are added to the index, yuan bonds will account for the fourth most prominent currency component of the index, according to Bloomberg. The currencies that will remain ahead of the yuan are the US dollar, the euro, and the Japanese yen.

The index is expected to include 386 Chinese securities, which will account for 5.49 percent of the total $53.73 trillion valuation of the index, according Bloomberg data as of January 31, 2018.

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