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Bloomberg Fixed Income Index Methodology

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Bloomberg Fixed Income Index Methodology Bloomberg Fixed Income Indices Bloomberg Fixed Income Index Methodology August 24, 2021 Bloomberg Fixed Income Index Methodology 1 Bloomberg Fixed Income Indices August 24, 2021 Our global family of fixed income indices traces its history to 1973 when the first total return bond index was created. For nearly fifty years, these indices have been the market standard for fixed income investors seeking objective, rules-based, and representative benchmarks to measure asset class risk and return. On August 24, 2016, Bloomberg acquired these assets from Barclays Bank PLC. and co-branded the indices as the Bloomberg Barclays Indices for a term of five years. From August 24, 2021, we refer to them as the Bloomberg Fixed Income Indices. In addition to the Bloomberg Fixed Income Indices, Bloomberg also offers other index families, including the Bloomberg AusBond, Commodity (“BCOM”), Currency Indices, and most recently Equity Indices. ● AusBond Indices are the leading fixed income benchmarks for Australia and New Zealand. ● BCOM are a family of benchmarks designed to provide liquid and diversified exposure to physical commodities through futures contracts. ● Currency Indices offer a real time measure of the underlying currencies against a diversified, dynamic basket of emerging and developed market currencies. ● Equity Indices are a complete set of global families covering over 99% of the available free float market cap in 49 developed and emerging countries. These, among other, index families have separate methodologies and are not covered in the scope of this publication. These methodologies are available on the Bloomberg Terminal® and on the Bloomberg Index Website (www.bloomberg.com/indices). While Bloomberg Index Services Limited (“BISL” and with its affiliates, “Bloomberg”) publishes a wide range of index primers, factsheets, rules documents, technical notes, and index specific research in support of our products, the scope of our offering can make it a challenge for both new and experienced index users to get a full overview of the methodology in a single publication. This guide supplements these index-specific documents to detail index rules and methodologies for most of the Bloomberg Indices in a single publication. In particular, this methodology document will cover: ● Index eligibility criteria and inclusion rules ● Rebalancing rules and mechanics ● Return calculations, analytics and pricing conventions ● Weighting and aggregation rules Understanding the methodology is an important part of the portfolio management process; as such, we understand that no single document will answer every question that an index user may have. The index group has dedicated teams of research analysts globally to work with clients on bespoke index and portfolio management solutions and assist clients with specific questions that may not be addressed in this methodology. We invite readers to direct any further questions they may have to these teams to facilitate an even stronger dialogue between index users and the research analysts who have put it together. Bloomberg Fixed Income Index Methodology 2 Bloomberg Fixed Income Indices August 24, 2021 Version Tracker*: Date Update Owner 12 December 2018 Methodology Update for BMR requirements Sherwood Kuo Methodology Update for ESG disclosures, as well as index changes and 29 April 2020 Kate Onodi clarifications since previous version Methodology Update for end of co-branding agreement, and rules 24 August 2021 Kate Onodi changes and clarifications since previous version *For the latest updates and rules clarifications since the last version noted above, please see INP<GO> on the Bloomberg Terminal or contact a team member at [email protected] Bloomberg Fixed Income Index Methodology 3 Bloomberg Fixed Income Indices August 24, 2021 Table of Contents About Bloomberg Indices 5 Benchmark Index Design Principles 10 Benchmark Index Eligibility Rules 12 Currency 13 Sector 16 Credit Quality 24 Amount Outstanding 27 Maturity 31 Country 32 Market of Issue 37 Taxability 39 Subordination 40 Benchmark Index Rebalancing Rules 42 Benchmark Index Pricing and Analytics 50 Benchmark Index Returns Calculations and Weighting Rules 54 Appendices 63 Appendix 1: Total Return Calculations 63 Appendix 2: Index Rules for Currency Hedging and Currency Returns 67 Currency Returns and Hedging for Series-B Indices 74 Appendix 3: Detailed Discussion of Excess Return Computations 77 Appendix 4: Benchmark Index Pricing Methodology 82 US Aggregate Index Components 82 Other US Indices 83 Pan-European Indices 84 Other Pan-European Indices 84 Asian-Pacific Indices 86 EM Local Currency Government Index-Eligible Currencies 87 Price Timing & Conventions for Nominal Bonds and Convertibles 87 Inflation-Linked Indices 89 Appendix 5: Cloomberg Fixed Income Classification System and Codes 91 Appendix 6: Glossary of Terms – Index Terms 93 Appendix 7: Glossary of Terms – Index Analytics 99 Appendix 8: Glossary of Terms – Index Aggregation Values 101 Appendix 9: Index Governance and Index Methodology Considerations 102 Appendix 10: Environmental, Social and Governance Disclosures 106 Bloomberg Fixed Income Index Methodology 4 Bloomberg Fixed Income Indices August 24, 2021 About Bloomberg Indices BISL has two core index business lines: 1) Benchmark Indices and 2) Investable Index Products. While benchmark indices (and the risk and return characteristics they provide at the security, sector, and asset class levels) are a fundamental part of the portfolio management process, index demand has evolved beyond traditional long-only measures of broad market performance. Investors now also use indices to efficiently measure and access beta, enhanced beta, and alpha through rigorous and transparent rules-based index products. The suite of products and services reflects this evolution and offers investors a more comprehensive approach to portfolio management challenges. Overview The range of products and The Bloomberg index brand is most commonly associated with market-leading fixed income services offered by and inflation-linked benchmark indices such as the Global Aggregate Index and World Bloomberg extends well Government Inflation-Linked Bond Index. However, the range of index products and services beyond benchmark fixed offered by Bloomberg extends beyond benchmark indices to include investable index products income indices to include designed to offer access to systematic strategies (beta, smart beta, and alpha) across multiple investable index products asset classes (fixed income, equities, commodities, FX, etc.). Portfolio analytics and portfolio modeling are complementary functions available through the PORT portfolio management platform available through the Bloomberg Terminal. With dedicated teams in the US, Europe and Asia, Bloomberg is able to offer products and services for a broad array of investor types and portfolio management functions. By firm type, users of Bloomberg Indices and Bloomberg portfolio analytics and services include asset managers, insurance companies, pension funds/plan sponsors, investment banks, commercial banks/trust banks, central banks, sovereign wealth funds, hedge funds, ETF providers, investment consultants, and private wealth and retail investors. By function, investment professionals that use Bloomberg Indices and Bloomberg portfolio analytics include portfolio managers, investment officers, asset allocators, performance analysts, risk analysts, research analysts, traders, marketing professionals, structurers, pricing analysts, operations and market data teams, and investment consultants. Benchmark Indices The Bloomberg Indices are the most widely used fixed income and inflation-linked benchmarks and are an integral part of the active and passive global portfolio management processes. With broad product coverage, a strong history of innovation, and objective and transparent rules, BISL has continually been recognized as the top index provider.1 Bloomberg Indices are also the most widely used benchmarks for fixed income exchange traded funds (“ETFs”). History and Evolution The Bloomberg index brand The Bloomberg Indices can trace their genealogy back to 1973, with the launch of the first can trace its roots back more generally available total return bond indices for the US bond market: the US Government and than 40 years, to 1973, with US Investment Grade Corporate Indices. At the request of the Bond Portfolio Managers the launch of the US Association, two Kuhn Loeb researchers2 created these new bond market benchmarks on July Government and US 7, 1973, to offer investors a performance target akin to those that had long been available for Corporate Indices equities. At the time, bond indices consisting of yield averages had been around for decades, but bond total return indices did not exist. Broad acceptance of total return debt indices took several years; however, asset management trends in the 1970s – specifically, the need for greater portfolio accountability – contributed to the demand for such indices. By the late 1970s, public and private plan sponsors, as well as active money managers, had embraced these initial US Government and US Corporate Indices. The US Aggregate Index was The expansion of the platform remained largely rooted in the US capital markets during the created in 1986 1980s. The Municipal Bond Index was launched in January 1980 to track the market for tax- exempt municipal securities in the US. In 1986, the Government/Credit Index (created in 1979 and used as a first generation broad-based
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