(Yicai Global) March 31 -- Global equity benchmark provider FTSE Russell has confirmed that it will follow in the footsteps of Bloomberg and J.P. Morgan and include Chinese government bonds in its flagship global index from October this year.

Chinese sovereign notes will be included in the FTSE World Government Bond Index from Oct. 29 over a period of three years with a weighting of 5.25 percent, the world’s second largest index compilation firm said yesterday. The Bloomberg Barclays Global Aggregate Index and the JPMorgan Government Bond Index-Emerging Markets added them last year.

London-based FTSE Russell’s WGBI is a benchmark for global government bond indexes comprising sovereign debt from over 20 countries. With around USD2.5 trillion of funds under management tracking the index, the inclusion of 5.25 percent Chinese bonds could see passive capital inflows of over USD130 million into the country’s bond market, the Securities Times reported.

After the Chinese government notes are included, the WGBI’s mean yield will rise to 0.65 percent, and the average maturity will be shortened to 8.59 years from 8.77 years now, UK lender Standard Chartered said earlier. This is because Chinese debt offers an average yield of 3.09 percent, much higher than the WGBI’s current 0.52 percent, and they have a shorter average duration of 5.31 years.

China has been opening up its bond market to the outside world in recent years and has introduced several measures to help foreign investors participate, said Zhang Jinqiu, vice president of HSBC China and co-director of global capital markets. Overseas holdings of Chinese government debt had risen for 27 straight months as of February.

Once the inclusion in the WGBI is completed in 2024, the scale of Chinese government debt held by foreign investors will surge 80 percent to CNY3.8 trillion (USD579 billion) from now, HSBC said. However, increased international holdings of Chinese assets will require greater risk management of cross-border capital flows, it added.

Editor: Kim Taylor