Dow Jones Indexes has launched a family of indices measuring the market’s expectation of the future rate of US inflation.
They are intended to serve as the underlying basis of financial products such as exchange-traded funds, swaps and structured products.
The main index in the family is the Dow Jones Long-Term Inflation Index, which tracks the difference in returns of long-term Treasury Inflation Protected Securities and the long-term Ultra Treasury Bond futures contract listed at the Chicago Board of Trade. Two sub-indexes individually track returns of the component instruments.
The index methodology was developed in the New York office of Credit Suisse Group. Dow Jones Indexes, which is 90 per cent owned by CME Group and ten per cent by Dow Jones & Company, will calculate, maintain, market and license the indexes.
“This project is an exciting example of how our joint venture is able to incorporate and leverage successful CME Group products, data and relationships – in this case with Credit Suisse – to bring innovative new index products to market,” says Michael A. Petronella (pictured), president, CME Group index services. “These indexes track very liquid instruments in a unique way to produce a transparent measure of inflation expectations. The indexes thus become indispensable tools for market participants who want or need to take future inflation into account in their investment strategies.”
“The Dow Jones Long-Term Inflation Index is designed to closely track long-term inflation expectations as embodied in the nominal and inflation-linked Treasury market, while avoiding undue complexity,” adds Tim Blake, head of the North American interest rate products group at Credit Suisse. “The elegantly simple design creates unique, powerful indicators for everyone from retail investors to the most sophisticated institutional clients.”
The index measures the difference in returns of the on-the-run 30-year TIPS bond – which pays a fixed coupon and, at maturity, a principle amount linked to the inflation rate as measured by the Consumer Price Index – and the Ultra Treasury Bond futures contract.
