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Barclays Capital expands Fiscal Strength Weighted Index family into covered bonds


Barclays Capital, publisher of leading broad market bond benchmarks, has launched a new family of Fiscal Strength Weighted Covered Bond Indices. This new suite of benchmark indices uses fundamental measures of fiscal sustainability to adjust country weights within existing Covered Bond benchmarks, thereby offering an alternative for investors beyond the existing flagship market value weighted indices.

“The global covered bond market is a growing segment of the fixed income market and an increasing part of the investment choice set for securitised, rates, and credit investors,” says Fritz Engelhard, Head of Covered Bond Strategy at Barclays Capital. “In the covered bond space, market value weighted indices tend to be rather strongly exposed to Spain and France due to the high historical covered bond issuance activity out of these countries. Performance swings in these covered bond markets, given the sovereign crisis, exceeded the risk appetite of typical covered bond investors, and the new Fiscal Strength Weighted alternative achieves a reduction in index weights of the two countries.”

The Fiscal Strength Weighted methodology uses country scores derived from publicly available fundamental measures of a country’s financial solvency, dependence on external financing, and institutional strength to adjust the market capitalisation country weights within existing Barclays Capital benchmarks. Market value weights are also used as a fundamental measure of market capacity and liquidity and are then scaled up or down based on this country score. This hybrid approach allocates additional index weight towards countries that have higher scores while ensuring that the index remains replicable by not forcing large or excessive weights to smaller or less liquid markets.

“Fiscal Strength Weighted indices are just one of a number of Barclays Capital index products that have resonated with investors seeking alternatives to traditional market value weighted indices,” says Brian Upbin, Head of Benchmark Index Research at Barclays Capital. “By extending these innovative designs into different segments of the fixed income asset class, Barclays Capital continues its commitment to offering a diverse range of traditional market value and alternative weight benchmark index solutions tailored to investors’ specific portfolio objectives.”

Barclays Capital Fiscal Strength Weighted Covered Bond Indices can be accessed on Barclays Capital Live, on Bloomberg and on Barclays Capital POINT.

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