FTSE Russell launched a government bond index focusing on frontier emerging markets, giving access to bonds with a market capitalization of more than $400 billion.
The index provider’s new index series measures the performance of 13 fixed-rate, local currency government bond markets that are categorized as frontier emerging markets by FTSE Russell. The series includes a market-value-weighted index and a 10% country-capped index. Countries included in the index must meet certain eligibility criteria, including market size and credit rating.
The weighted average coupon for bonds in the index is 9.98%. Inclusion of different countries will be reviewed in March and September.
The countries included at the launch of the index are Bangladesh, Costa Rica, Dominican Republic, Egypt, Ghana, Kenya, Morocco, Nigeria, Pakistan, Serbia, Sri Lanka, Ukraine and Vietnam.
FTSE Russell worked with Colchester Global Investors, a fixed-income manager, on the index series.
“Tracking government bond markets is a real strength for FTSE Russell,” said Nikki Stefanelli, global head of fixed income and multiasset index policy at FTSE Russell, in an email. “Now that we’ve established what our accessibility criterion looks like at the highest level with the FTSE World Government Bond index, it was a good opportunity for us to turn our attention to the other end of the continuum with the frontier choice set.”
The index provider has received positive feedback, which “is supportive of our hypothesis that the index choice set for emerging markets bonds was too narrowly defined and there is real interest here,” she said.
Ms. Stefanelli said there has been increased demand for an index to track frontier government bonds. “The countries tracked by our new (index) are an increasingly liquid, accessible and relatively high-yielding part of the global debt markets, which are receiving an increasing amount of attention from international investors,” she said.