S&P Dow Jones Indices (S&P DJI), one of the world’s leading providers of financial market indices and a major player in the exchange-traded funds industry, has unveiled the S&P 500 Bond Index, the first ever index tracking the debt of the S&P 500 companies.
J.R. Rieger, Head of Fixed Income, for S&P Dow Jones Indices.
The newly launched index will measure the performance of publicly traded fixed income bonds issued in the US by companies in the blue chip S&P 500. The index currently tracks the debt of 430 companies reflecting more than $3 trillion in debt outstanding and $3.8 trillion in market value.
When paired with the S&P 500 equities index, the index provides powerful insight into the performance and financial conditions of leading US companies.
The index is weighted by the market value of the bonds and has a maturity requirement of one month or greater. The index also applies minimum size constraints: for investment-grade bonds, a minimum par of $250 million at each rebalancing is required; for high-yield bonds, a minimum par of $100 million at each rebalancing is required. Rebalancing is conducted monthly, thus keeping the index current. The resultant index is also liquid enough to serve as the basis for potential ETFs and structured products.
Commenting on the launch, J.R. Rieger, Head of Fixed Income for S&P Dow Jones Indices, said: “S&P Dow Jones Indices is introducing the S&P 500 Bond Index at a critical juncture as two major trends converge. First, global markets are grappling with the potential end of a six-year bond rally, the end of which could have significant ramifications for portfolio debt holdings. Second, regulatory changes resulting from Dodd Frank, the post-Libor landscape, and Basel III for example, have many concerned about diminished liquidity in the bond markets. As a result, the market is begging for an intra-day measure that can provide broad transparency into company debt and that is liquid enough to potentially trade throughout the day via exchange-traded and structured products.”
According to S&P DJI, around 94% of the market value of the debt is rated investment grade, but only 1.4% of the market value of the index receives the highest rating of AAA. The maturities range from one month to almost 96 years. By market value, 41% of the debt is set to mature in less than five years, 31% between five and ten years and the balance over ten years. There are nine issues with maturities longer than 80 years.
The index is also available in sector, investment-grade or high-yield versions.