State Street Shuts China Bond ETF in Europe

State Street Shuts China Bond ETF in Europe

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

Reviewed by: Ron Day
Edited by: Staff

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 Boston-based firm, whose SPDR unit is the third-largest U.S. exchange-traded fund issuer, 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). 

In the U.S., State Street's largest China ETF is SPDR S&P China ETF (GXC), an equity fund which holds $493.6 million and launched in 2007. It's gained 11% so far this year, while adding 1.9% over the past decade. Investors have pulled $225.6 million from the fund so far this year. 

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 $2.6 billion 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 $13.1 billion by the start of 2022 but investors were soon shunning the asset class due to the lack of relative yield in the market versus U.S. 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 $437 million of outflows over the last 12 months, according to data from Bloomberg.

This article originally appeared in sister publication ETF Stream.