Investment bank J.P. Morgan recently launched the first euro zone inflation- proof government bonds index to benchmark the swelling fixed income niche.
The Euro Linker Securities Index, or ELSI, maps the total return of all seven of the euro zone's index-linked government bonds since January 2000, the bank said. The index will assume that coupons paid are reinvested into the issues.
Until 2003, France was the only currency bloc member to issue government bonds pegged to the rate of euro zone inflation, before being joined by popular issues in Italy and Greece.
The market's size leapt from 30.2 billion euros of outstanding issuance in 2002 to 63.6 billion euros in 2003.
The market is forecast almost to double this year to 114 billion euros.
German debt authorities have also mulled an issue of index-linked bonds, as has Belgium and non-euro zone sovereign Switzerland.
The new index will admit issues with at least 500 million euros of outstanding debt to ensure the niche issues have reasonable liquidity.
"But we will be flexible to admit sovereigns that fall below the minimum size of outstanding security size, so long as they have some undertaking to increase the issue's size in the future," Jorge Garayo, strategist at J.P. Morgan, told Reuters.
Index-linked bonds were pioneered by non euro zone sovereign the United Kingdom in 1981, and others to launch issues since have included the United States, Canada, Australia, New Zealand, Sweden and Iceland.
The US launched Treasury Inflation-Proof Securities, or "TIPS", in 1997 and this is now the world's biggest index-linked bond market.
Demand for a benchmark index for inflation-proof bonds was strongest among euro zone-based investors, Garayo said. That was why the euro zone was chosen as the first area to launch.
Comments
Comments are closed.