Merrill Lynch has developed new Local Debt Market Indices, which are designed to track the performance of emerging market sovereign debt denominated in the issuer’s local currency. The series includes three new indices:
The Merrill Lynch Local Debt Markets Plus Index is a broad composite index designed to track the performance of local currency sovereign debt of countries with a foreign currency long-term sovereign debt rating of A1 or lower based on an average of Moody’s, S&P and Fitch.
The Merrill Lynch Net Cap-Weighted Liquid Local Debt Markets Index is an index representing a liquid basket of fixed rate bonds with country allocations based on their relative capitalisation weights in our corresponding broad country indices.
The Merrill Lynch Net Equal-Weighted Liquid Local Debt Markets Index is an index representing a liquid basket of fixed rate bonds with equally weighted country exposure.
“The local debt markets have grown significantly over the past few years as issuer’s have turned their attention to their own domestic markets,” says Phil Galdi, managing director of the firm’s Global Bond Index & Analytics group.
Since its chosen inception date, 31 December 2005, the Local Debt Markets Plus Index has nearly doubled in size to $1.4 trillion. That is more than four times the size of the comparable emerging markets external debt index and accounts for a significant 4.3% share of the total $32.5 trillion in debt tracked by Merrill Lynch’s combined investment grade and below investment grade global bond indices.
“As an asset class, local debt markets have historically demonstrated attractive return and diversification benefits that make them an important component of a portfolio strategy. The two liquid indices are intended to help investors who seek access to bonds that are representative of this important asset class,” adds Daniel Tenengauzer, managing director of Merill Lynch’s Emerging Markets Local Currency Debt Strategy group.