ICAP Public. ICAP Indices. ICAP US Treasury Index Rules

Transcription

1 ICAP Indices ICAP US Treasury Index Rules

2 Contents 1. Introduction 2. Data Sources and Index Publication 3. Rebalancing and Selection Criteria 4. Index Algorithm 5. Further Information CONTACT For all enquiries, including design, commercial licence and additional data enquiries, please TERMS OF USE The ICAP US Treasury Index is free to use for personal, internal purposes and for noncommercial activity. All commercial usage and redistribution is subject to a licence. For further information, please contact us at indexenquiries@icap.com DISTRIBUTION The ICAP US Treasury Index is available from Bloomberg: page IDXA Reuters: page IIDXUST Website: ICAP plc This information is for internal use only. All information contained herein and any opinions expressed in it, have been derived from sources believed to be reliable and in good faith they are not to be relied upon as authoritative or taken in substitution for the exercise of your own commercial judgment. The Information is directed to Eligible Counterparties and Professional Customers only and is not intended for Retail Clients (as each term is defined by the rules of the Financial Conduct Authority ("FCA")) and is the intellectual property of ICAP plc and/or one of its group companies ( ICAP ). This information has no regard to specific investment objectives. Any opinions expressed in it are subject to change without notice and may differ from opinions expressed by other areas of the ICAP group. This information is not, and should not be construed as, an offer or solicitation to sell or buy any product, investment, security or any other financial instrument. ICAP does not make any representation or warranty, express or implied, as to the accuracy, completeness or correctness of this information. ICAP does not accept any liability for any loss or damage, howsoever caused, arising from any reliance on any information or views contained in this material.

3 1. Introduction 1.1 The ICAP US Treasury Index ( UST Index ) is a series of total return bond indices that measure the performance of US Treasury notes and bonds. The indices are published between 8am and 4pm with five second updates and with a 4pm snapshot (New York time). 1.2 Bond prices are taken from ICAP. Benchmark bond prices are taken from BrokerTec, ICAP s leading electronic bond platform, and prices for non-benchmarks are taken from ICAP s widely distributed reference curve for US Treasuries. Prices in both cases are realtime quotes. 1.3 The UST Index series comprises the following indices representing specific maturity ranges for the underlying selection of notes and bonds. UST Index UST Index UST Index All Maturity (1yr+) 3 7 years years 1 3 years 5 7 years years 1 5 years 5 10 years 10 years years 5 15 years 15 years years 7 10 years 20 years Bonds eligible for the UST Index are nominal US Treasury Notes and Bonds. 1.5 The UST Index is based to 100 as of 31 December 1991 and is available with a complete daily history to the present day. 1.6 Nominal sizes of bonds used in the UST Index calculations are the issued amounts reduced by US Federal Reserve holdings. 1.7 Each total return index is published together with its average coupon, average remaining maturity, average yield, average duration, average modified duration and average convexity.

4 2. Data Sources and Index Publication 2.1 Data Sources Bond prices are taken from ICAP. Prices for benchmark Treasuries with 2, 3, 5, 7, 10 and 30 year maturities are taken from BrokerTec, ICAP s leading electronic bond platform. Prices for non-benchmarks are taken from ICAP s widely distributed reference curve for US Treasuries. Prices in both cases are realtime quotes and are subject to a maximum bid-offer spread when used in an index calculation. If there is no quote, or the bid-offer spread of the quote is wider than the maximum permitted for an index calculation, the most recent acceptable price is used Bond and Note nominal sizes are as published by the Bureau of the Public Debt on the Treasury Direct website US Federal Reserve Treasury Bond and Note holdings in the System Open Market Account (SOMA) are as published by the Federal Reserve Bank of New York The overnight repo rate used for reinvesting coupons paid during a month is the ICAP irepo GC index published at 15:00 New York time Index Publication The ICAP US Treasury Index, including associated analytics, is published at both current and historical values Bloomberg page IDXA includes details of individual index and analytic tickers Thomson Reuters page IIDXUST includes details of individual RICS The UST Index is published between 8am and 4pm with five second updates and with a 4pm snapshot (New York time) Bond prices used for the 4pm New York time UST Index snapshot, together with accrued interest and bond analytics, are available for subscription via FTP file. For further information, please indexenquiries@icap.com Both the realtime ICAP BrokerTec benchmark bond prices and the realtime ICAP reference curve for nonbenchmarks are widely distributed via data vendors. For further information, please icapinformationservices@icap.com Monthly bond selections used in the UST Index calculations are published at The ICAP i-repo GC index is published at Bloomberg page IREP Thomson Reuters page IREPO

5 3. Rebalancing and Selection Criteria 3.1 Each selection (i.e. basket) of bonds is used for one calendar month, beginning on the first US business day of each month 1. During the effective month, the ICAP US Treasury Index is updated using the total return of the monthly selection (including any coupons paid out) relative to the value of that selection at a base date and time of 4pm New York time on the last US business day of the calendar month prior to the effective month. 3.2 New monthly selections of bonds for each UST Index are published three US business days prior to the first US business day of the effective month. 3.3 The eligible maturity period for a monthly selection for a specific index is defined as being on and from the relevant starting anniversary of the first calendar day of the effective month up to but excluding the relevant ending anniversary of the first calendar day of the effective month. For example, the 1-3 year UST Index will, for the effective month of September 2013, use eligible notes and bonds with maturities on and from 1 September 2014 up to but excluding 1 September The All Maturity, 10 year +, 15 year +, 20 year + subindices have no upper limit to the maturity of eligible notes and bonds. 3.4 To be eligible for a monthly selection for a UST Index, notes and bonds must have the following characteristics US Treasury marketable notes and bonds (zero coupon bills, floating rate notes and inflation-protected TIPS are not eligible) Issued before the first calendar day of the effective month Fixed coupon Mature during the eligible maturity period for that UST Index and monthly selection. 1 US business days are determined in accordance with the SIFMA holiday schedule

6 4. Index Algorithm 4.1 Total Return Index The ICAP US Treasury Index is a total return (TR) index, capturing the performance of regularly rebalanced selections of US Treasury notes and bonds. Coupon payments paid out on any bond or note in a monthly selection are reinvested overnight in the repo market (i.e. invested using a secured interest rate) and rolled until the next rebalance date at the end of the calendar month. At that point, all cash holdings are reinvested into the new monthly selection of notes and bonds Each UST Index is calculated as in which 0 0 (1) is the value of a UST Index at time and date during the effective month for the selection, time 0 is the base date and time for the selection and is 4pm New York time on the last US business day of the month preceding the effective month is the dirty price (i.e. clean price and accrued interest) of bond of the index selection at time and date, is the nominal amount of that bond and the summations are over all bonds in the relevant index selection ( denotes the total number of bonds in that selection) is the amount of cash held for that index and being invested overnight in the repo market, as calculated in accordance with equation 2. For a given UST Index, the same monthly selection of bonds is used in both the numerator (at time ) and denominator (at the base date and time 0) of equation 1. When the selections are rebalanced, the new selections are used in both the numerator and denominator of equation The nominal amount of each bond used in equation 1 is the dollar nominal amount of the bond issued as published on the Treasury Direct website minus the amount held in the SOMA as published on the Federal Bank of New York website. In both cases, the amounts used are the most recent published amounts prior to the third US business day prior to the effective month of the new selection. Additionally, the issue date of new bonds or bond increases or buy-backs must be prior to the first calendar day of the new month A(t) is the cash account for a subindex at date and time. Cash holdings are invested overnight using secured (i.e. repo) one-day interest rates and are calculated as the return on the previous day s cash account plus any new coupon payments due , 1 2 (2) in which 1 is the overnight repo rate used to re-invest the previous day s cash account and is the number of calendar days from the previous day (1) to the present day (), 1 is equal to 1if a coupon becomes due on bond when moving from the previous day (1) to the present day () and is otherwise zero

7 is the annual coupon of bond, is the nominal amount of that bond as used in the index calculation (equation 1) and the summation is over all bonds in the relevant UST Index selection ( denotes the total number of bonds in that selection) Note that the cash account only changes with coupon payments and interest received i.e. it may change from one day to the next but will not change intraday. Note also that at a monthly rebalance, all cash is reinvested in the new selection of bonds. Consequently, the cash account at the base date and time, 0, is always zero for all indices and all effective months Monthly rebalancing for a new effective month takes place at 4pm New York time on the last business day of the preceding month ( ). At this time, the cash account of each index,, will be greater than zero if the expiring monthly selection of bonds for that index experienced one or more coupon payments. The cash account associated with selections for the new effective month, 0, is always zero. This matches the performance of a portfolio with Treasury notes and bonds held in proportion to the value of the notes and bonds in the expiring monthly selection and cash from coupons paid out that reinvests its entire value (including all cash) in the same notes/bonds and proportions of the new monthly selection Bonds that are completely new to a monthly selection for an index are valued at the rebalance using their offer price. That is, 0 in equation 1 for such new bonds is based on the offer price at the rebalance date and time. Prices for all other bonds at that time, and for all bonds throughout the effective month ( 0), are based on the bid prices The index rebalance of an expiring monthly selection of bonds (and any cash held) into the new monthly selection has no effect on the total value of bonds and cash. Therefore, the final index value calculated using the expiring monthly selection at 4pm New York time on the first business day prior to the new effective month () is used as the base index for the index calculations the new effective month (0 in equation 1).

8 4.2 Index Analytics Each UST Index is published with associated average analytics. These index analytics are the weighted average of the equivalent analytics for the individual bonds in the monthly selection for that index. The weightings used are either the nominal size of the bonds, the market capitalisation of the bonds or the modified duration of the bonds The nominal weighting of an individual bond analytic,, to give the index analytic, is (3) The market capitalisation weighting of an individual bond analytic,, to give the index analytic, is (4) The macaulay duration weighting of an individual bond analytic,, to give the index analytic, is (5) in which is the macaulay duration of bond at date and time The index analytics and their weighting algorithms are Index Analytic Weighting Algorithm Average Coupon Nominal Weighting (equation 3) Average Remaining Maturity Nominal Weighting (equation 3) Average Yield Macaulay Duration Weighting (equation 5) Average Macaulay Duration Market Capitalisation Weighting (equation 4) Average Modified Duration Market Capitalisation Weighting (equation 4) Average Convexity Market Capitalisation Weighting (equation 4) Average yields are semi-annually compounded.

9 5. Further Information 5.1 Further information regarding the ICAP US Treasury Bond Index is available at For all enquiries, including licensing enquiries, please For further information please contact an ICAP Information Services Sales Manager in your local region: Americas Asia Pacific (Singapore) (Hong Kong) Europe, Middle East, Africa +44 (0) icapinformationservices@icap.com or visit ICAP plc All information contained herein and any opinions expressed in it, have been derived from sources believed to be reliable and in good faith they are not to be relied upon as authoritative or taken in substitution for the exercise of your own commercial judgment. The information is directed to Eligible Counterparties and Professional Customers only and is not intended for Retail Clients (as each term is defined by the rules of the Financial Conduct Authority ("FCA")) or equivalent in a relevant jurisdiction and is the intellectual property of ICAP plc and/or one of its group companies ( ICAP ). This information has no regard to specific investment objectives. Any opinions expressed in it are subject to change without notice and may differ from opinions expressed by other areas of the ICAP group. This information is not, and should not be construed as, an offer or solicitation to sell or buy any product, investment, security or any other financial instrument. ICAP does not make any representation or warranty, express or implied, as to the accuracy, completeness or correctness of this information. ICAP does not accept any liability for any loss or damage, howsoever caused, arising from any reliance on any information or views contained in this material. ICAP and the ICAP logo are trademarks of the ICAP group. Certain ICAP group companies are regulated by the FCA. For further regulatory information, please see All rights reserved. Redistribution is prohibited.