IHS Markit adds iBoxx bond indices to securities lending performance reports
IHS Markit, a financial information and analytics provider, has added six global iBoxx bond indices to its monthly securities lending performance reports, including: iBoxx USD Liquid High Yield, iBoxx USD Liquid Investment Grade, iBoxx EUR Corporates, iBoxx EUR Sovereigns, iBoxx USD Treasuries and iBoxx Global Government indices.
The performance reports leverage IHS Markit Securities Finance analytics on the current and five-year lending returns for constituents of each iBoxx index, expanding the first set of reports that IHS Markit launched for MSCI equity indices in April. For each iBoxx index, insight is provided on monthly, quarterly and annual returns, utilisation levels, contribution by securities lending fee categories and returns based on credit ratings and years to maturity.
“Following the successful launch of our monthly equity reports this year, asset managers and pension funds are keen to examine high-level metrics on securities lending performance in the fixed income space,” says Paul Wilson, managing director and global head of Securities Finance at IHS Markit. “With expanded coverage for fixed income, our monthly performance reports deliver unique analysis on 12 indices, providing securities lenders with better vision on potential portfolio returns across assets.”
“iBoxx indices are synonymous with global bond markets and provide a strong foundation for our securities lending performance reports, which can help institutions identify trends and opportunities to optimise returns,” says Smadar Shulman, executive director for Indices at IHS Markit. “This collaborative effort across Indices and Securities Finance demonstrates how IHS Markit combines unique data and insights to drive a deeper understanding of markets.”
Key findings from the first set of reports include:
- The utilisation of fixed income lendable assets increased sharply in March as valuations declined and borrow demand increased. The increased borrow demand, relative to lendable supply, pushed lending fees higher and delivered increased income to beneficial owners, as noted in our Q1 revenue snapshot. The increased returns have been most prevalent, and lasting, for US sovereign debt with Q2 on pace to dramatically exceed Q1 returns. Returns for lenders of corporate debt have continued to decline from their peak in Q4 2018, with consistently increasing supply outpacing borrow demand, particularly following the Federal Reserve messaging to the market in late March. In these reports, we feature the securities lending fee or spread return, however it is also worth noting that returns to reinvested cash collateral have also delivered excess YTD returns for lenders, as falling rates benefitted short term rates instruments.
- iBoxx USD Liquid High Yield Index return to lendable assets has declined by more than 50 per cent year-over-year. This index also has the highest concentration of individual issues trading special, given its exposure to high yield credits, with more than 50 per cent of the lending returns attributed to this category over the 12 month period ending May 2020. The number of USD HY special constituents jumped from 31 in March to 52 in May.
- iBoxx USD Liquid Investment Grade Index produced the lowest securities lending return, 0.3bps to 0.4bps, with general collateral credits contributing 84 per cent of the return.
- iBoxx EUR Corporates Index return to lendable assets increased steadily in March and April, before levelling off in May between 2 to 3 bps. YTD lending return range of 1.7 to 2.2 bps is still lower than the range of 2.4 to 2.9 bps for the same period last year. The index return to lendable has increased by more than the broader EUR corporate universe in Q2 owing to a greater weighting toward a HY bond trading special.
- iBoxx EUR Sovereigns Index returned 3.7 to 5.4 bps in May, with 50 per cent of the revenue contributed from bonds with 7+ years to maturity remaining. YTD 2020 lending returns have declined year-over-year, partly driven by a declining borrow demand for Italian sovereign debt.
- iBoxx USD Treasuries Index returned 4.1 to 7.5 bps from securities lending fees over the 12 month period ending May 2020. The 6.4 bps in QTD return nearly matches Q2 2018 returns, which were the post-crisis record for 2nd quarter returns at 6.9bps.
- iBoxx Global Government Index lending returns were boosted by UST exposure, with 4.8 to 8.2bps in May returns to lendable assets.