This month Lyxor AM, part of Societe Generale, is due to launch an exchange traded fund that indexed to the new EuroMTS index covering Euro-zone government debt, subject to regulatory approval.
This should provide a boost for the index among investors, says Scott Stark, chief executive officer of EuroMTS Index (EMTX), which launched the index last year. Stark, who was formerly with DJ STOXX, joined the index provider before then to help with the launch.
“With ETMX’s real-time approach and based on tradeable prices, it is equivalent to an equity index,” says Stark. This makes it different to the indices run by the major investment banks, often based on their own internal pricings by their dealers, or the iBOXX, which takes price feeds from a range of banks active in bond trading.
The index was developed by EuroMTS, which runs the electronic bond trading platform, and European exchange group Euronext, through a joint venture MTSNext.
In 2002, EuroMTS acquired the rights to the CNO Etrix indices of Euro government bonds from CNO, the French bond association, and re-branded it as the EuroMTS Index last year.
The index, which is a euro-denominated total return series, is calculated using real-time bond prices from over 250 market participants on the inter-dealer MTS electronic trading system for fixed income, with average transaction volumes of over E75bn per day.
The ETMX is calculated using just 110 bonds, typically half or less of the number of bonds in the other main Euro-zone government indices, such as JP Morgan, Merrill Lynch. EuroMTS says that it still demonstrates “exceptional correlation with broader but less liquid indices”. This makes it easier to replicate the index, but without affecting adversely its tracking accuracy, it is claimed.
“There are an average of just 20 or so bonds in each of the six maturity buckets of the index,” says Scott. These range from a one to three years band to 15 years plus. There are index price fixings twice a day, in the morning and afternoon.
He says that the index can be used as a benchmark. In France some E75bn is benchmarked to it and elsewhere he sees this increasing.
In addition to the development of exchange traded funds based on EMTX, Scott believes that it will be used for structured products and derivatives, pointing out that BNPParibas and CDC IXIS among others, are looking at different strategies including index swaps.