Of Chinese bondage

7 March 2017 By Pete Sweeney Follow @petesweeneypro

The U.S. bank will include Chinese bonds in existing emerging market indexes – the first major provider to do so. This is a victory for Beijing, which has struggled to lure foreign investors. It’s a low-risk diplomatic win for Citi, as the sums involved are probably small.

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Citigroup said on March 7 that it will include China's onshore bonds in its emerging markets and regional indexes.

"After an extensive review which included consultations with market participants, we have concluded that China is eligible to join three existing government bond indices – the Emerging Markets Government Bond Index (EMGBI), Asian Government Bond Index (AGBI), and the Asia Pacific Government Bond Index (APGBI)," Citigroup said.

The group will also include Chinese bonds in two new indexes related to the World Government Bond Index, which will itself remain unchanged.

Citigroup received a Chinese government bond settlement licence in February.

Bloomberg and FTSE have already created parallel indexes to track Chinese bonds. As such indexes have no constituents to start with, they do not compel existing funds to add Chinese bonds to their portfolios.

On Feb. 27 China allowed foreigners to hedge currency risk via FX forwards and swaps.

Foreign investors owned Chinese bonds worth just 870 billion yuan ($126.13 billion) at the end of 2016, according to the State Administration of Foreign Exchange - less than 2 percent of the onshore bond market.

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