iBoxx, the indexing joint venture between Deutsche Borse and seven investment banks, has added liquidity indices to its portfolio of bond indices. The new index family will include a total of 25 indices, with bonds selected according to liquidity criteria. The indices offer a basis for exchange-traded and over-the-counter derivatives as well as exchange-traded funds (ETFs) and will be launched at the end of October.
“The Liquid Indices are the first indices of their kind in Europe,” says David Mark, chief executive officer of iBoxx. “Because they cover only a small number of highly-liquid bonds, the tracking and hedging costs for banks that set up products on the indices will be reduced.”
The new indices are designed to appeal to fund managers as well as investment banks, and to serve as benchmark indices in the trading and evaluation of investments in securities. The Liquid Indices will initially comprise 25 indices on euro-denominated corporate bonds, government bonds and sub-sovereigns. For corporate bonds, rating, sector and maturity indices will also be calculated. The Liquid Indices will gradually be expanded to include new indices.
Bonds will be included in the new indices if they meet strict liquidity criteria. They must, for example, be no more than four years old in the case of government bonds (2 years for non-sovereign bonds); the remaining time-to-maturity has to be at least 1.5 years; and the amount outstanding at least one billion euros (sovereign bonds 2 billion euros). Moreover, bonds must have a minimum rating and a minimum lot size. The number of bonds per index is limited to between 10 and 40, depending on the Liquid Index. The indices have a base value of 100 and date back to December 31, 1998.
iBOXX is a joint venture between Deutsche Borse and ABN AMRO, Barclays Capital, BNP Paribas, Deutsche Bank, Dresdner Kleinwort Wasserstein, Morgan Stanley and UBS Warburg. As a group, the iBoxx indices are a new generation of real-time bond indices, which are based on an objective and transparent set of rules. The seven investment banks transmit their bid and ask quotes on a continuous basis to Deutsche Brse, which calculates the consolidated prices and indices from these data in real time and distributes them via its CEF (Consolidated Exchange Feed) price dissemination system and the Internet.