S&P launches new Eurozone index to measure government bond market

By Devika Patel

Knoxville, Tenn., Nov. 16 - Standard & Poor's said it created the S&P Eurozone Government Bond index, a comprehensive, market-value-weighted index that is intended to measure the performance of the "developed" European government bond market and provide investors with a view across the Eurozone as a whole.

The index is made up of bonds issued by all those countries within the Eurozone that are considered developed markets under Bank of International Settlements classifications.

The country weightings in the S&P Eurozone Government Bond index as of Oct. 30 are Italy at 23.3%, Germany at 21.8%, France at 20.2%, Spain at 9.1%, Belgium at 6.1%, Greece at 5.4%, the Netherlands at 5.1%, Austria at 3.8%, Portugal at 2.4%, Ireland at 1.7% and Finland at 1.1%.

Overall, 11 of the 16 Eurozone countries are represented in the new index. Cyprus, Luxembourg, Malta, Slovenia and Slovakia do not fulfill the criteria.

All European government bond types are included, with the exception of European government inflation-indexed, floating-rate and zero-coupon bonds. The included bonds must be denominated in euros, have a minimum issue size of at least €1 billion and have a maturity greater than or equal to one year.

The index is divided into a suite of subindexes that are differentiated by their constituents' range of maturities. The maturity ranges include one to three years, three to five years, five to seven years, seven to 10 years and more than 10 years.

The index will undergo rebalancing on a monthly basis. It does not have a set number of constituent bonds, and there is no limit on the proportion of the index that any one country within the Eurozone can represent.

"The Eurozone government bond market is a bit smaller than the U.S. Treasury market, but much more complex, principally because there are 16 separate issuers, and likely more in the future," Standard & Poor's indexes vice president James Rieger said in a press release. "We often see debt from the smaller countries trading at spreads above the largest, more liquid issuers - many investors are keen to capture the yield potential of the Eurozone in its entirety, others focus on the most liquid bonds, but either way, this index provides a comprehensive measure against which to benchmark Eurozone bond investing."

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