Bloomberg has launched the Bloomberg Barclays Liquid China Credit (LCC) Index, which is designed to track the liquid, tradable portion of the RMB-denominated credit bond market. The announcement comes during the final month of a 20-month phase-in of China Government and Policy Bank securities into the flagship Global Aggregate Index, which began in April 2019. The LCC Index has been created using the rules of the Bloomberg Barclays China Aggregate Index but also selects securities based on a combination of China Foreign Exchange Trade System (CFETS) trade volumes and issuer ratings from the three major global rating agencies.
In order to represent the tradable, liquid component of the credit market, the LCC Index uses a unique methodology that incorporates CFETS trading volumes among other criteria. Specifically, bonds are included if they have traded on at least 10 per cent of the business days over the past three months and have at least RMB250 million in aggregate trading volume over that period.
In addition to the standard criteria of the China Aggregate Index, bonds in the LCC Index must also meet the following criteria: an index rating at issuer level of investment-grade based on at least one rating from the three global rating agencies, non-subordinated, and a maturity of greater than one year at inclusion. In addition, bonds in the index are held until maturity and the issuers are capped at 10 per cent. The LCC Index is rebalanced monthly and newly eligible issues are added on a quarterly basis.
Using data as of October 30, 2020, the LCC Index contained 125 securities across 48 issuers with official BCLASS classifications of both government-related and corporate. The average yield was 3.4 per cent and duration was 1.9.
“With government and policy bank securities now fully phased into the Global Aggregate Index, the LCC Index is an important step towards establishing broader transparency and accessibility into China’s credit markets,” says Steve Berkley, CEO of Bloomberg Index Services Ltd. “We expect that this new index will help market participants better understand the attributes of China’s credit market. Investors and asset managers can use it numerous ways, including in product launches, derivative contracts, and traditional benchmarking.”
Li Meijing, General Manager of the RMB Market Department of CFETS, says: “CFETS has been improving our trading services and solutions to enhance the liquidity of China’s credit market, now valued at USD7 trillion, in the past few years. We are pleased to provide trading data to Bloomberg’s LCC index and look forward to more participation and acceptance among global investors of China’s credit market, driving more liquidity and investments.”
Hu Jian, Senior Managing Director, Chief Investment Officer for Fixed Income, E Fund Management Co, adds: “The launch of the LCC Index is a major step towards introducing China’s onshore credit market to global investors, with enhanced access to critical information such as global rating, liquidity and diversification. We are excited to see the further evolution of the Bloomberg China index family, and look forward to helping our global clients achieve their investment goals with onshore credit solutions.”
In early November, Bloomberg will be the first global index provider to complete China’s inclusion into its flagship index, the Bloomberg Barclays Global Aggregate Index, marking a milestone in the investability of this important bond market. Chinese securities now represent about 6 per cent of the index, and local currency Chinese bonds will be the fourth largest currency component after the dollar, euro and yen. Liquid China Credit bonds are not currently eligible for inclusion in the Bloomberg Barclays Global Aggregate Index.