BlackRock introduces USD-hedged share class for China CNY bond ETF

Nov 11th, 2019 | By | Category: Fixed Income

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BlackRock has introduced a new share class for the iShares China CNY Bond UCITS ETF, providing currency-hedged exposure to renminbi-denominated government and policy bank bonds issued in China.

BlackRock introduces USD hedging for China bond ETF

The new share class hedges currency exposure between renminbi and the US dollar.

The new share class, which hedges exchange rate risk between renminbi and the US dollar, trades on Euronext Amsterdam under the ticker CYBU NA.

The fund tracks the Bloomberg Barclays China Treasury + Policy Bank Index through physical replication using a stratified sampling technique.

The index reflects the performance of fixed-rate RMB-denominated treasury bonds and policy bank bonds listed on the China interbank bond market.

Eligible securities must be rated investment grade and have a minimum of one year to maturity. The index currently contains over 300 bonds.

Nearly half (46.6%) of the index is allocated to bonds issued by the Chinese government, with the remaining weight assigned to bonds from China Development Bank, Agricultural Development Bank, and Export-Import Bank of China. These three policy banks are responsible for financing economic and trade development as well as state-invested projects.

The ETF may appeal to investors searching for increased yield without wanted to venture into junk bond territory – the underlying index is currently yielding 3.3%. It can also serve as a portfolio diversifier with BlackRock noting that Chinese bond yields have historically exhibited a near-zero correlation with government bonds of developed countries.

The fund comes with moderate interest rate risk with the underlying index showing an effective duration of 5.5 years.

The new currency-hedged share class comes with an expense ratio of 0.40%, five basis points higher than the unhedged share class which costs 0.35%.

The fund houses $130 million in assets under management.

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