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What is the iBoxx®?

Justin Riche
Justin Riche

The iBoxx® is a denomination of particular bond market indices used by professionals in finance. These indices are used as benchmarks in the cash bond market because they mainly consist of investment-grade issues. Some of the reasons for their use include performance evaluation, asset allocation and fixed income research. The iBoxx® indices are designed to befit diverse investment profiles and strategies. They are chiefly comprised of the major global sovereign and corporate issued bonds, denominated in the issuer's local currency, such as US Dollars (USD), Euro and Sterling.

A bond market index measures and tracks specific debt instruments issued by governments, corporations and all sorts of institutions seeking to raise funds. The criteria for selecting the instruments that make up an index can be particular. In the case of iBoxx®, they are chosen according to a standard of bonds, market issue, rating, period to maturity, the amount outstanding and more.

Man climbing a rope
Man climbing a rope

A typical iBoxx® index is arranged in a hierarchical scheme to permit the users to analyze particular and necessary information at required levels. Moreover, the indices are classed by the sort of issuer, credit rating, sector, time to maturity and more. This allows investors to segment and examine the market according to their investment characteristics and strategies. For example, a given investor might be interested only in bonds issued by the U.S. Treasury, U.S. agencies and U.S. corporations. Therefore, he or she would consult only iBoxx® USD bond indices, which have the underlying bond prices of that market and the related information accessible in real time.

The flexibility of the iBoxx® indices allows investors to isolate their analysis by geographic location, industry sector and other particulars. For example, an investor can access indices of bonds denominated in Euros and British Pound, issued from Eurozone nations and the United Kingdom, respectively. These are further subdivided into sovereign and quasi-sovereign issues, into collateralized and corporates bonds and by appropriate maturity, sector and grades. Quasi-sovereign bonds are issued by agencies and institutions that are backed by governments.

The global reach of the indices extends to Asian and emerging countries bond markets. Sovereign and quasi-sovereign issues from China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand, are reached through the Asian bond indices. An investor can research fixed-income products from emerging markets through the iBoxx® Global Emerging Markets Local Currency Bond Index.

Yield-focused investors and those bent on high risk might find the EUR High Yield Index suitable for their purpose. This is composed of corporate bonds that are mostly below investment grade. Furthermore, investors seeking to hedge against inflation might be attracted to Global Inflation-Linked indices covering major international sovereign and government-backed bonds.

All of these indices are designed to provide independent and unbiased information regarding all of the bond markets they cover. Furthermore, these indices can be traded through exchange traded funds (ETFs) that track them and through other means. The iBoxx® indices are used by a diverse group of people. Included in this group are asset managers, active traders, analysts, investment bankers, regulators, risk controllers and so on. Moreover, one can access these indices through a number of data providers in real time.

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