THE largest exchange-traded fund (ETF) to invest purely in China’s government bonds will list in Singapore today, capitalizing on surging interest in the world’s second-biggest bond market.

The first China bond ETF in Singapore, managed by CSOP Asset Management, will launch with an initial US$676 million drawn from both institutional and retail investors and trading will begin today.

The launch comes as foreign investors stream into China’s onshore yuan bonds and as it steps up efforts to deregulate its capital markets and promote global use of the yuan.

The ETF, which tracks the FTSE Chinese Government Bond Index, is designed to help capture “opportunities brought by the booming China onshore bond market and its continuous inclusion into the world’s major global indices,” said Ding Chen, CEO of CSOP Asset Management.

Chinese government bonds, which pay a yield premium over U.S. government debt of more than 200 basis points at the ten-year tenor, are becoming increasingly popular with investors.

Foreigners increased their holdings of onshore yuan bonds for a 21st consecutive month in August and hold more than US$400 billion worth.

Global index publisher FTSE Russell will announce a decision this week on whether to add the Chinese bonds to its global benchmark.

Morgan Stanley gave China a 60-70 percent chance of being included, saying it could funnel US$60 billion-US$90 billion in foreign inflows in the next few years.

COSP Asset Management is more bullish, estimating the inclusion could bring around US$150 billion in inflows, potentially helping its new China bond ETF to grow to “at least a few billion U.S. dollars,” according to managing director Melody He. (SD-Agencies)