Onshore China bonds enter the Bloomberg Barclays Global Aggregate Index today

Author: Eamonn Sheridan | Category: News

Via ANZ, a note on China bonds and what it means for the currency

  • Today sees formal entry of onshore China bonds into the Bloomberg Barclays Global Aggregate Index, another important milestone in the country's financial market liberalisation.
  • We estimate potential foreign bond inflows of USD150bn over the 20-month phase-in period from asset managers tracking the Global Aggregate Index.
  • Inclusion in other major bond indexes is only a matter of time. Alongside equity index re-weighting and further FX reserve allocation into RMB, the expected pick-up in foreign portfolio inflows will help offset the narrowing in China's current account surplus and support the yuan.
More on the yuan implications (in brief) :
  • The expected increase in foreign inflows into the China bond market from index inclusion, plus the ongoing allocation of global FX reserves into RMB, could see potential steady inflows of up to USD400bn over the next two years. To put this in context, foreign bond inflows over the past two years totalled USD142bn. 
  • ... Given the structural increase in foreign portfolio inflows over the next few years, we expect the yuan to stay supported.

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