The Liquid Indices for European fixed-income securities will be launched on October 23, the European index provider iBoxx Ltd. announced on Tuesday. As previously reported, the new indices cover highly liquid euro-denominated bonds. The Liquid Indices will initially comprise 22 indices on corporate bonds, government bonds and sub-sovereigns. Maturity indices will be calculated for government bonds, and corporate bonds will have rating and sector subindices.
The new Liquid Indices will be updated every minute. In addition to index levels, analytical values, such as yield, duration, modified duration and convexity, will be published for the individual bonds and the indices. The base date for the indices is December 31, 1998 at a level of 100. Depending on the specific index, each will comprise 10, 20 or 40 bonds.
The Liquid Indices are the first of their kind in Europe and are designed above all for institutional investors, asset managers and investment banks. Because they mirror the most liquid portion of the market in euro-denominated bonds, they are a valuable indicator for trading and provide a basis for exchange-traded and over-the-counter derivative products as well as exchange-traded funds. Transaction costs and accrued interest are taken into account in the quarterly rebalancing of the indices. Bonds included in the new indices must meet strict liquidity criteria such as a minimum amount outstanding, a maximum age and a minimum time to maturity. Moreover, the (non-sovereign) bonds require a minimum rating and a minimum lot size.
The index provider iBoxx is a joint venture between ABN AMRO, Barclays Capital, BNP Paribas, Deutsche Bank, Dresdner Kleinwort Wasserstein, Morgan Stanley, UBS Warburg and Deutsche Brse. 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 leading investment banks in bond trading transmit their bid and ask quotes on a continuous basis to Deutsche Brse, who then calculates the consolidated prices and indices from these data in real time and distributes them via its price dissemination system and the Internet.