State Street Global Advisors introduced a new bond ETF in Europe offering exposure to treasury bonds issued by the Chinese government.
The SPDR Bloomberg Barclays China Treasury Bond UCITS ETF (SPP8 GY) has been registered on Xetra.
Other announcements on London Stock Exchange in US dollars (CHNT LN) and pound sterling (CHGT LN) and on Borsa Italiana in euros (CHNT IM) are expected in the near future.
The fund is linked to Bloomberg Barclays China Treasury 100BN Index which measures the performance of renminbi-denominated fixed-rate Treasury bonds traded on the Chinese interbank bond market.
Eligible issues must have an outstanding amount of at least CNY 100 billion and a remaining term to maturity of at least one year.
The index is rebalanced monthly.
At the end of September, the index contained 51 issues and had a worst-case yield of 2.76% and an effective duration of 6.23 years. China currently has a credit rating of A1, which is considered “upper average quality”.
The fund may be of interest to investors looking for increased yield – Chinese bonds offer a yield rally of around 195 basis points versus global Treasuries (based on the Bloomberg Global Aggregate Treasury Index) – without venturing into junk bond territory. It can also serve as a portfolio diversifier, as Chinese bond yields have historically shown a close to zero correlation with US, German and Japanese government bonds.
Chinese bonds are also supported by ongoing index inclusion programs, with onshore Treasury bonds having been included in the Bloomberg Global Aggregate Bond Index and Bloomberg Emerging Markets Index in Government Local Currency since 2019, and the JP Morgan GBI Emerging Markets Index family since 2020.
More recently, as of October 31, 2021, FTSE Russell began to include Chinese bonds in its FTSE Global Government Bond Index. Exposure to China will be added gradually over 36 months, equivalent to $ 4.5 billion in monthly inflows, according to estimates by FTSE Russell, providing a compelling tailwind for investors.
The fund comes with an expense ratio of 0.19%. Income is accumulated.
The fund enters an increasingly crowded area with Black rock, Goldman Sachs, DWS, KraneShares, and LGIM all of which offer ETFs exclusively targeting Chinese Treasuries or combining government bonds and strategic banks.
The iShares China CNY Bond UCITS ETF (CNYB LN) is by far the largest of these, having increased its assets under management from $ 1 billion in August 2020 to over $ 13 billion as of November 11. CNYB comes with an expense ratio of 0.35%.
The new SSGA SPDR fund becomes the cheapest in the space, as measured by the TER. The next cheapest is the $ 780 million Goldman Sachs Access China Government Bond UCITS ETF (CBND LN) which has an expense ratio of 0.24%.