Leading asset managers including E Fund Management and Ping An Fund announced on June 6 that their credit bond ETFs have been approved by China Securities Depository and Clearing Corporation Limited (ChinaClear) and stock exchanges to serve as eligible collateral for general collateral repurchase agreements. This development follows similar approvals granted to GF Fund and Da Cheng Fund the previous day, marking the first inclusion of credit bond ETFs in China’s repo collateral framework.
Market Participants Welcome Enhanced Flexibility
Industry sources reveal that multiple institutional investors plan to actively participate in these newly enabled repo transactions. Market analysts highlight dual benefits: the mechanism allows risk management optimization through credit risk diversification while simultaneously improving overall market liquidity for credit bonds.
“As an innovative listed ETF product, credit bond ETFs offer transparent underlying assets, operational efficiency and improved capital utilization,” said Wan Xiaohui, portfolio manager at Da Cheng Fund’s credit bond ETF. “Their inclusion in general repo transactions enriches exchange-traded collateral options and signifies enhanced liquidity.”
Regulatory Milestone in Fixed Income Innovation
The general collateral repo system permits market participants to borrow short-term funds using securities as collateral, with principal and interest repaid upon maturity. ChinaClear’s March policy update authorized qualified credit bond ETFs for repo transactions, representing the first expansion of eligible collateral beyond government bond ETFs since the 2013 pilot program.
“This development will boost secondary market liquidity and attractiveness of credit bond ETFs,” commented Li Yishuo, head of fixed income strategies at E Fund. “It creates substantial benefits by broadening credit bond allocation channels.”
Credit Bond ETFs Experience Rapid Growth
The approval comes amid accelerating adoption of bond ETFs, with credit-focused products demonstrating particularly strong momentum in 2024. Wind data shows credit bond ETFs attracted RMB 67 billion net inflows during January-May, accounting for 80% of total bond ETF inflows. By May 31, aggregate credit bond ETF assets surpassed RMB 140 billion, representing nearly half of China’s bond ETF market.
May alone saw record monthly inflows of RMB 37 billion into credit bond ETFs, comprising 90% of sector-wide inflows. Li attributes this growth to increasing recognition of credit bond ETFs’ structural advantages: “The T+0 trading, cost efficiency, diversification and transparency address challenges in direct credit bond investing, where issues like single-name concentration and liquidity constraints create management complexity.”
Product Features Drive Adoption
GF Fund’s ETF manager Hong Zhi highlighted benchmark market-maker corporate bond ETFs as exemplars of the category’s strengths: “The underlying bonds are exchange-screened for size and credit quality, with enhanced liquidity from primary market makers. The resulting ETFs offer transparent, lower-risk exposure with efficient tracking – ideal instrumental products.”
Future Outlook
Looking ahead, Li anticipates medium-term credit bonds will maintain attractive valuations amid expectations for stable monetary policy and range-bound interest rates. “With continuing infrastructure improvements, credit bond ETFs retain significant growth potential,” he concluded, pointing to the expanding toolkit for fixed income investors.
Related topics:
