Rising-rate environment behind new bond index launch

FTSE Russell to allow asset owners to see securities through to maturity

Rising-rate environment behind new bond index launch

The rising-rate environment and money managers’ need for greater transparency has led the FTSE Russell to launch its 0+ universe bond index.

A new version of their flagship index, the move is designed to address the portfolio needs of Canadian fixed-income investors, allowing managers to track the zero-to-one-year segment of the market.

Marina Mets, managing director of fixed income at FTSE Russell, said this allows investors, particularly ones in Canada where asset owners are well funded, to see their securities through to maturity.

She told Wealth Professional: “That’s one idea [behind the launch]. The other is that the short end is getting much more attractive as the curve has steepened out.

“The duration on the flagship universe has extended by more than two years or so over the past couple of decades and the long end is very sensitive to volatility and rising rates. People are looking to de-risk that by looking at the short end of the curve and much more finite segmentation, and looking to hold things out to maturity.”

Mets believes the move by FTSE Russell, which assumed 100% ownership of the FTSE TMX last month, has come at the right time as people analyze risk-return profiles on their funds.

She added: “We also think it’s very timely from a transparency angle because we are also providing indexing as well as the pricing, the valuation on the individual bonds, and there isn’t a product today that offers that degree of measurability of availability, especially in the corporate space at that short degree of the market.”

With it being decades since dramatic rate increaees and even 10 years since the financial crash, there are many young portfolio managers who simply have not experienced a downturn and Mets said educating people about the potential changing environment has been crucial.

She said: “There are expectations of much more rising rates this year. What we’re finding is that a lot of the managers, advisors and consultants operating in the market today have never operated in a rising-rate environment. This industry is just getting younger and younger.

“The last time we had any type of run-up in rates was in the 80s and 90s - a lot of these people were hopefully studying it then!”


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