CBON: Considering Chinese Onshore Bonds as an Allocation
Why China Onshore Bonds?
LUDAN LIU: The Chinese bond market has historically had low correlation with major asset classes in the world. Therefore it may potentially offer diversification benefits to investors. For investors who seek income, the yield levels are pretty attractive compared to developed market bonds.
LIU: CBON is a bond ETF. We at China Asset Management have been working with Van Eck and as a bond ETF, CBON enables investors to invest in on-shore Chinese bond markets. CBON has an index, which we call the ChinaBond China High Quality Bond Index. The index is weighted 20% to Chinese treasury bonds, 30% to policy banks, and 50% to credit bonds, which are rated AAA locally. The reason we call this a "high quality" index is all the names in the index have very good credit credentials and minimum default risk.
LIU: Papers issued by entities that are locally AAA- rated comprise 50% of this high quality index. In terms of credit quality, they are very comparable to investment grade in the U.S. and in Europe. By structuring the index this way, we hope to dramatically reduce credit risk. The remaining 50% of the bonds have been issued by Chinese governments or Chinese policy banks, whose credit qualities are comparable to those of industrialized countries.
China Bond Indices provided by China Central Depository & Clearing Co., Ltd. is one of the central clearing agents for Chinese independent markets. Its indices are very widely used. Almost all domestic asset managers use its data for valuation.
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