Bloomberg to add RMB bonds to Global Aggregate Index

Inclusion of RMB-denominated bonds “represents a pivotal development for investors around the world”, says Henry M Paulson

RMB-denominated securities: phase-in scheduled to start in April 2019 and last for 20 months

Bloomberg is set to add Chinese RMB-denominated government and policy bank securities to the Bloomberg Barclays Global Aggregate Index, with their phase-in beginning in April 2019 and rolling out over a 20-month period.

Inclusion of the new securities is dependent on several planned operational enhancements being implemented by the People’s Bank of China (PBoC) and China’s ministry of finance. Once the operational hurdles have been overcome and the papers are fully accounted for in the Global Aggregate Index, local currency Chinese bonds will make up the fourth-largest component after the US dollar, euro and yen.

“Today’s announcement recognises China’s continued efforts over recent years to enhance access to the world’s third-largest bond market,” says Michael Bloomberg, founder of Bloomberg and chair of the Working Group on US RMB Trading and Clearing.

“It is a testament to China’s firm commitment to financial reform and the pace of change taking place in its bond market, and another important step for China’s integration with global financial markets,” he adds.

The company says that based on data from January 31, the index would include 386 Chinese securities and represent 5.49% of the $53.73 trillion index. The inclusion of the local currency debt market requires that it is classified as investment-grade and also freely tradable, convertible, hedgeable and free of capital controls.

Bloomberg says “ongoing enhancements from the PBoC have resulted in RMB-denominated securities meeting these absolute index rules”.

Still, further enhancements are required to ensure the timetable of inclusion remains on track. The PBoC still needs to make sure investors have the ability to allocate block trades across portfolios, ensure the implementation of delivery versus payment settlement and clarify tax-collection policies.

Today’s announcement recognises China’s continued efforts over recent years to enhance access to the world’s third-largest bond market
Michael Bloomberg, Working Group on US RMB Trading and Clearing

If progress on these enhancements is delayed, China’s inclusion in the Global Aggregate Index and other Bloomberg Barclays Indices may be pushed back, the company says.

“Bloomberg’s inclusion of RMB-denominated bonds in the most widely used fixed-income benchmarks represents a pivotal development for investors around the world,” says Henry M Paulson, co-chair of the Working Group on US RMB Trading and Clearing.

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

Chinese RMB-denominated debt will also be eligible for inclusion in the Global Treasury and EM Local Currency Government Indices from April 2019.

“The Chinese interbank bond markets continue to evolve and Bloomberg will reflect the maturation of this asset class in our global benchmarks,” says Steve Berkley, global head of Bloomberg Indices.

“Following our introduction of the China Aggregate Index in 2004 and the +China indices in 2017, the official inclusion of RMB-denominated securities in the Global Aggregate Index reflects the next natural step expected by global investors,” he adds.

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