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Index IDEA: A new lens into the Canadian fixed income market

A longstanding design feature of fixed income benchmarks has been to not track securities one year prior to maturity to reflect convergence in their behavior to money market instruments as they approach maturity.

As interest rates rise, Canadian fixed income investors are becoming more interested in tracking the entire curve, including the short (0 to 1 year) segment of the market. Typically, the longer end of the yield curve is more sensitive to changes in the interest rate. FTSE Russell is introducing its new 0+ Universe Bond Index to address this growing interest.

“It is not surprising that in our current rising rates environment, the shorter duration bond universe is drawing more interest from investors. We find our clients looking for tools to measure the very short segment (0-1 year) of the Canadian bond market, which our new index series aptly provides,” says Waqas Samad, CEO of global benchmarks for FTSE Russell.

The new 0+ Universe Bond Index series extends coverage of securities through maturity and provides Canadian investors with the tools to measure a segment of the Canada bond market not previously tracked.

FTSE Russell recently analyzed historical total return, average yield and modified duration for Canadian bonds its existing flagship Canadian bond index, the Universe Bond Index, which has a minimum one year to maturity inclusion criteria, relative to the new 0+ Year Universe Bond Index, which holds bonds to final maturity.

Marina Mets – managing director, Fixed Income, FTSE Russell:

“The Canadian Universe Bond Index duration has been steadily lengthening over the last few decades, increasing by over two years, from 5.3 in 2000 to 7.4 as of the end of March 2018. Introducing the 0-1 year coverage for bonds rolling down from the flagship index, brings the duration of the 0+ Universe Bond Index down to 6.8, while providing a very comparable return and yield.”

 

 

Get more information on ETFs based on indexes from FTSE Russell.

 

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