The Tel Aviv Stock Exchange (TASE) is launching a new bond price index, the Tel Bond-Composite index, which comprises all investment-grade bonds (BBB- or higher) which meet the criteria for index constituency. The index will be launched on 9 March 2014.
The Tel-Bond indices attract avid interest, creating demand for products tracking these indices. The TASE staff examined various alternatives to launch additional Tel-Bond indices and in the process the need to launch an index which reflects the return on the entire corporate bond market became apparent.
According to Robby Goldenberg, Senior Vice President and Head of Trading & Derivatives Department: “TASE continues to improve the liquidity of its listed securities, including that of TASE-listed corporate bonds. In light of the success of veteran Tel-Bond indices and in light of the need for an index which reflects the performance of all traded investment-grade corporate bonds, it is anticipated that the new index will constitute the underlying asset for additional TASE-traded products, which in turn will contribute to the liquidity of these bonds.”
Since the quality of a bond price index is also contingent on the diversification of its constituent bonds, the new index will be diversified with a low weight cap, which will reduce the relative impact of large bond series, which already are well represented in existing Tel-Bond indices, and will increase the relative impact of bonds which enjoy less representation in existing indices.
More than 230 bond series issued by 76 issuers will comprise the index, while the highest weight held by a single issuer in the index will not exceed 10%. The weight of a single bond series in the index will be capped at one half of one percent. The weight of the banking and real estate sectors will be lower relative to their weight in existing Tel-Bond indices.
The index will include approximately 20 series with a cumulative anticipated weight of around 8.5%, mostly non-linked variable interest rate bonds, which are not constituents of existing Tel-Bond indices.
The proposed rating threshold for the constituent bonds renders the index appropriate for institutional investors.
The launch of financial products tracking the new index is expected to improve the liquidity of its constituent bonds.
