Lehman Brothers includes Taiwan's bonds in its index

"It is abnormal that the turnover of Taiwan's bond market reached NT$190 trillion as of last month, the second largest in Asia after Japan, but has seen almost no foreign investment."

Kong Jaw-sheng, Financial Supervisory Commission chairman

Lehman Brothers Inc yesterday officially announced the inclusion of Taiwan's bond market into its flagship Global Aggregate Index starting next year, a move expected to attract a significant amount of overseas funds to the local market, which has seen negligible participation by foreign investors lately.

"It is abnormal that the turnover of Taiwan's bond market reached NT$190 trillion [US45.72 trillion] as of last month, the second largest in Asia after Japan, but has seen almost no foreign investment," Financial Supervisory Commission (FSC) Chairman Kong Jaw-sheng (龔照勝) said in a media briefing yesterday.

The inclusion is expected to raise the visibility of Taiwan's bond market and to lure foreign investment into the booming market, which can be deemed a milestone in the nation's capital market development and the effort to evolve into a regional financial services hub, Kong said.

In the initial stage, Lehman Brothers will include 67 items of NT dollar-denominated treasury bonds with a total market value of US$96.3 billion, representing a weighting of 0.46 percent of the index.

No clear timeframe to include Taiwanese corporate and other securitized bonds was given, because of their relatively small size and less ideal liquidity, according to Norman Tweeboom, senior vice president of fixed-income indices for Asia at Lehman Brothers Asia Ltd.

Approximately US$1 trillion worth of assets are managed against the Global Aggregate Index that comprises 10,251 securities, valued at US$21 trillion, traded in the bond markets in territories including the US, the EU, Japan, South Korea and Australia.

Out of demand for hedge exposure and portfolio diversification, a majority of global investors said "yes" to the proposed inclusion of Taiwan's currency and bond market in the securities house's yearly survey in September, he said.

However, he declined to estimate the amount of foreign funds that could be allocated into local bond exchange in the future, saying that this is an independent decision made by investor clients, over which the indices provider has no say.

Not until this year have international investors showed an interest in Taiwan's bond exchange market.

Lee Shyan-yuan (李賢源), member of the financial supervisory commission, attributed the positive change to the nation's decent credit quality and that all treasury-bonds ratings are above AA-, a strengthening New Taiwan dollar expected to appreciate, and fixed-income market improvement in recent years.