Industry Updates

State Street shuts China government bond ETF on low demand

Issuer said demand has fallen since inclusion of China bonds in global indices

Lauren Gibbons

China behind bars ex China ETFs

State Street Global Advisors (SSGA) is set to close its China government bond ETF as persistent low yields has impacted investor demand.

In a shareholder notice, the US giant said the SPDR Bloomberg China Treasury Bond UCITS ETF (CHNT) will close on 5 July.

CHNT launched in 2021 and houses $12m assets under management (AUM).

Antoine Lesné, head of ETF investment strategy for EMEA at SSGA, said investor demand for Chinese government bonds has decreased after they were included in global indices, adding allocations now being made through segregated mandates or mutual funds.

The largest China bond ETF is the $2.6bn iShares China CNY Bond UCITS ETF (CNYB) which launched in July 2019, around the time Chinese bonds were first included in global indices.

CNYB grew to $13.1bn by the start of 2022 but investors were soon shunning the asset class due to the lack of relative yield in the market versus US Treasuries.

“The yield differential compared to the US has shifted from being a tailwind to a headwind,” Lesné said.

“10-year US Treasury yields increased from below 1% in 2020 to 4.5%, while Chinese bond yields dropped from 3.2% to 2.3%. This change partly explains the low inflows in this category.”

In the shareholder notice, SSGA said: “The board do not believe that it will increase materially in the near future and the fund is uneconomic to operate.

“The board are of the opinion that the proposed termination is in the best interests of the fund's shareholders.”

In April, KraneShares closed its China bond ETF amid low assets under management, alongside its China A-Share ETF.

Despite China ETFs experiencing a 12-month slump, they have led the gains for monthly returns in May after investors reapproached the region on low valuations and strong financials from key stocks.

China government bonds have seen $437m of outflows over the last 12 months, according to data from Bloomberg.

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