Charting the impact of sovereign bond market inclusion

The impact of inclusion of a country’s bonds in a flagship local currency government bond index, is naturally of great interest for issuers and investors alike. An accurate overview allows market participants to anticipate corresponding asset flows and allows issuing governments to more accurately assess the impact to their local capital market of an inclusion event.

A recent case, which illuminates the impact of inclusion, is that of Israel. Israeli local currency government bonds were the first to graduate to FTSE World Government Bond Index (WGBI)  through the FTSE Fixed Income Country Classification Process, which was introduced in January 2019.

Having now been included to the WGBI for roughly six months,[1] we thought it was an appropriate juncture to review the implications to the local market with respect to foreign exchange rates, international inflows and shifts in holding distributions, as well as approaches to managing a government bond market portfolio. More broadly, this highlights the importance of market evolution for flagship global bond indexes and the importance of introducing diversity through a transparent, rigorous and rules driven framework.

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