INDEX provider FTSE Russell gave final approval Monday for inclusion of Chinese sovereign bonds in its flagship bond index, starting later this year, setting the stage for billions of dollars of inflows into the world’s second-largest economy.

Chinese government bonds will be added to the FTSE World Government Bond Index (WGBI) over three years from the end of October, FTSE Russell said in a statement.

Chinese government bonds were previously included in index suites from JPMorgan and Bloomberg Barclays, but FTSE WGBI inclusion is expected to have a larger effect due to the size of passive flows tracking it.

HSBC said that with roughly US$2.5 trillion tracking the WGBI, some US$130 billion in inflows could be expected, given China’s eventual 5.25 percent weighting — about US$3.6 billion a month.

“From a global perspective, it improves inclusion statistics of the index — not having the second-largest country in it was a gap,” said Binay Chandgothia, a portfolio manager at Principal Global Investors in Hong Kong.

The 36-month phase-in is longer than the one-year process FTSE flagged in September. FTSE said “a more conservative” schedule was appropriate because of feedback from market participants, which had included concerns from Japanese investors around settlement and liquidity.

China’s debt is already increasingly popular with global investors, attracted by its yield and its relative insulation from movements in other bond markets.

Foreign investors held a record 2.06 trillion yuan (US$318.7 billion) in Chinese government bonds in February, even as premiums over U.S. debt shrank as a bond sell-off dented global markets. (SD-Agencies)