A new family of bond indices targeting liquid issues has been launched.
Frankfurt-based fixed income indices provider iBoxx says it has produced a series of Euro Liquid Indices that focuses on a small number of the most liquid issues.
The set of benchmarks is made up of 22 indices, covering corporate, sovereign and sub-sovereign bonds. Maturity indices are calculated for government bonds, while corporate bonds have rating and sector sub-indices.
“Hedging or arbitraging broad indices is difficult and has meant that in the past there has been little market for index-linked bond products,” says David Mark of iBoxx. “The advent of iBoxx Liquid Indices changes that situation.”
Because the indices mirror the most liquid portion of the market, they act as a valuable indicator for trading and provide the basis for exchange-traded and OTC derivative products as well as exchange-traded funds. Transaction costs are taken into account in the quarterly rebalancing of the indices.
Bonds included in the indices meet strict liquidity criteria, including minimum amount outstanding, maximum age and minimum time to maturity.
On top of this, there are ranking criteria for individual issues and provisions to avoid name concentration. Non-sovereign bonds require a minimum rating.