FTSE Russell finalises fixed income country classification framework

FTSE Russell has finalised a country classification process for fixed income, having this week published the framework it developed in consultation with market participants.

The framework assesses how easy it is for foreign investors to access different local currency, fixed-rate government bond markets. This is measured across four main sets of market criteria, such as the foreign exchange market structure, and 17 separate indicators.

‘Market Accessibility Levels’ are assigned to countries tracked by FTSE Russell’s indices, which the provider said would replace existing “barriers to entry” criteria for the methodology of its flagship world and emerging markets government bond indices from 30 March.

The index provider said it intended to expand the classification process to other fixed income universes, such as inflation-linked bonds and credit sectors.

An initial review of markets was due to be completed in March, after which the index provider would publish an inaugural list of those markets being considered for potential reclassification.

Chris Woods, managing director for governance and index policy at FTSE Russell, said the introduction of the minimum market accessibility scores provided “an evidence-driven, robust framework, which can be applied across both flagship and bespoke benchmarks”.

The company has had a country classification framework for equity markets since 2003.

Separately, FTSE Russell has also launched a new index series tracking Chinese green bonds – “securities whose proceeds are specifically used to finance climate or environmental projects in mainland China”.

The debt would be labelled as ‘green’ by the issuer.  

According to the index provider, China was the second-largest green bond market globally, with $37bn (€32bn) issued in 2017.

There were currently 126 bonds included in the main index, covering approximately 75% of all on-shore labelled green bonds issued by China’s government, agencies and corporates, it said.

Waqas Samad, CEO for FTSE Russell’s benchmarks business, said: “In 2017, China green bonds issuance represented 23% of global green bond issues and the market is expected to continue to grow significantly over the coming years.”