Portugal has been added to the FTSE World Government Bond Index (WGBI), effective November 2024. FTSE Russell stated that the country now meets all three eligibility criteria for the classification: market size, credit rating and a Market Accessibility Level of at least 2.
The announcement was made with FTSE Russell’s publication of the March 2024 FTSE Fixed Income Country Classification Review.
As of March 2024, 17 EUR-denominated government bonds are expected to be included in the WGBI, with €114.9 par amount outstanding, accounting for 0.61% of the index on a market value weighted basis.
The country will also be included in FTSE WGBI-derived indices and alternatively weighted versions.
South Korea and India will remain on the FTSE Fixed Income Country Classification Watch List, the company confirmed, with both potentially facing Market Accessibility Level reclassifications and inclusion on the WGBI and Emerging Markets Government Bond Index (EMGBI) respectively.
South Korea was first placed in the watch list in September 2022. Since then, FTSE Russell has observed progression of local initiatives to improve government bond accessibility for international investors—which could shift the country’s Market Accessibility Level from 1 to 2.
Since the company’s September 2023 review, the Korean Securities Depository has signed contracts with Clearstream and Euroclear to connect to the International Central Securities Depository, a link expected to go live in June 2024. The country has also transferred from an Investor Registration Certificate to a Legal Entity Identifier registration scheme, and launched a third-party foreign exchange pilot in January 2024 with the goal of reforming its FX markets.
“FTSE Russell acknowledges the meaningful progress over the last six months, which is in line with the announced implementation target dates,” the company said. It added that it “recognises the commitment of the South Korean market authorities to address investor feedback regarding practical issues in the implementation of its reforms.”
The next review is scheduled for September 2024.
India was added to the watch list in March 2021, following the introduction of the Fully Accessible Route for international investors. The country is being monitored for a potential Market Accessibility Level change from 0 to 1.
FTSE Russell noted increased flexibility for custodians around margin financing and general progress in the accessibility of the government bond market since its previous review. However, it added that India must address its increased regulatory reporting, inflexible settlement cycle length, tax clearance process and lack of documentary requirements to fulfil the Foreign Portfolio Investor registration in order to improve its Market Accessibility Level.
“FTSE Russell intends to continue its valuable dialogue with the Reserve Bank of India and welcomes feedback from an expanding cohort of international investors entering the Indian government bond market on the practicalities of their investment experience,” the company concluded.
Switzerland has been removed from the watch list for a potential Market Accessibility Level reclassification from 0 to 1, and for inclusion in the FTSE WGBI, where it has been since September 2021. This is due to the country’s withholding tax reclamation process for government bonds failing to meet the taxation regime requirements of the FTSE Fixed Income Country Classification Framework.
The company stated that “FTSE Russell monitored proposed legislative reforms to abolish the withholding tax applied to international investors, which failed to pass in late 2022. FTSE Russell is not aware of any subsequent or planned reforms to the domestic taxation regime that would potentially result in a Market Accessibility Level reclassification”
