FTSE Russell launches investment grade US municipal bond index

Apr 30th, 2019 | By | Category: Fixed Income

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FTSE Russell has launched the FTSE Municipal Tax-Exempt Investment-Grade Bond Index, providing exposure to municipal bonds that are rated investment grade.

Scott Harman, Managing Director, Fixed Income Product Management at FTSE Russell.

Scott Harman, Managing Director, Fixed Income Product Management at FTSE Russell.

Municipal bonds (or “munis” for short) are debt securities issued by US states, cities, counties and other governmental entities to fund day-to-day obligations and to finance capital projects such as building schools, highways or sewer systems.

Generally, the interest on municipal bonds is exempt from federal income tax.

The index covers tax-exempt US dollar-denominated bonds issued by municipalities domiciled in the US and US territories. This includes fixed-rate and zero-coupon bonds that have a minimum issue size of $10 million.

General obligation bonds, revenue bonds, and double-barrel bonds are all eligible for inclusion.

A general obligation bond is backed by the credit and taxing power of the issuing jurisdiction, while a revenue bond must be repaid by the revenue generated from a given project. A double-barrel bond is backed by both the revenue from a defined project and the taxing power of an issuer.

Bonds making it into the index are weighted by market capitalization. Reconstitution and rebalancing occur on a monthly basis.

The index is designed to provide tracking for a more liquid subset of the overall outstanding municipal universe based on higher deal and issue size thresholds

The index currently contains over 33,000 issues. It has a yield to maturity of 3.1% and an effective duration of 6.2 years.

Half the index weight (50.9%) is allocated to bonds with an AA rating, followed by bonds rated A (22.8%), AAA (19.6%), and BBB (6.7%). The largest state exposures are New York (17.3%) and California (17.0%), followed by Texas (9.4%), Illinois (4.7%), and Florida (4.1%).

Sub-indices are available based on credit quality, state, municipal sector classification, and maturity.

Scott Harman, Managing Director, Fixed Income Product Management at FTSE Russell, commented, “The US municipal bond market is a significant domestic fixed income market and the launch of our new index reaffirms our commitment to expand our global fixed income coverage.

“FTSE Russell has been steadily growing its multi-asset capabilities offering comprehensive coverage across all major public markets and the new index, which tracks one of the largest bond markets in the world, can be used as the basis for a wide range of custom solutions.”

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