Hang Seng, Markit launches iBoxx Offshore RMB Bond index family

By Susanna Moon

Chicago, Oct. 20 – Hang Seng Indexes Co. Ltd. and Markit said they launched the Hang Seng Markit iBoxx Offshore RMB Bond index family.

The bond index series will track the performance of offshore renminbi sovereign and corporate debt using an enhanced methodology for the treatment of unrated bonds alongside comprehensive breakdowns by bond tenor and rating, according to a press release.

The HSM iBoxx is built on the iBoxx principles of transparency, independence, open access and multi-sourced pricing. The methodology reflects specific characteristics of the offshore RMB bond market based on feedback from more than 15 asset managers and banks, the release said.

Key features of the index family include

• A specific methodology to handle the treatment of unrated bonds, which currently account for up to a third of the index constituents. This allows investors to include unrated bonds in their analysis of the investment grade and high yield portions of the market;

• The incorporation of bonds in the index family until maturity. This reflects the short-term structure of many issues in the offshore RMB market, with a typical maturity of three years; and

• A comprehensive breakdown of the bond universe based on tenor, credit quality, sector and size.

The aggregate notional value tracked by the index increased by 27% year-on-year to RMB 237 billion in 2013 and by another 33% this year to RMB 316 billion as of Sept. 30.

The indexes will be operated in compliance with the Iosco Principles for Financial Benchmarks and are underpinned by Markit’s independent bond-pricing service, which is based on a broad set of bond prices received throughout the trading day from market participants.

The prices are subject to a rigorous series of quality controls before consolidated bid and ask prices are calculated, used for index calculation and published for every bond in the Markit bond universe, along with a range of analytical values, the release said.

The HSM iBoxx currently includes more than 600 indices covering sovereign, sub-sovereign and corporate debt issuers across sectors, ratings and maturity segments.

The combined total debt tracked through the index family is about RMB 300 billion. About 67% of the non-sovereign debt included in the indexes carries investment-grade ratings and 13% have a high-yield rating, while 20% of the bonds are not rated.

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