Bloomberg Professional Services
This article was written by Scott Atha, Fixed Income Indices Product Manager, and Fateen Sharaby, Business Manager for Index-Linked Products at Bloomberg.
With volatility at multi-year highs, monitoring intraday swings in the credit markets has been exceedingly difficult. Existing CDS indices can provide an indication for bonds, but in times of market stress, the cash-CDS basis can result in skewed values. Markets are moving very quickly, and such rapid dislocations can also vary between treasury rates and corporate spreads.
Bloomberg has recently developed a suite of real-time indices based on Bloomberg’s flagship Fixed Income Indices. Unlike traditional EOD indices, Tradable Trackers are designed to be liquid indices that tightly track the broad benchmarks on which they are based. Powered by Intraday BVAL (IBVAL), the intraday indicative levels on these indices is refreshed as fast as every 15 seconds. Below is a list of tickers for the five existing Tradable Trackers, and we are continuing to develop more versions.
Tradable Trackers are designed match the duration and sector exposures of the parent indices using a liquid subset of bonds. The indices are comprised of ~100 issuers (~200 for high yield) across all sectors with two liquid bonds per issuer, and the index is reconstituted quarterly instead of monthly. The table below compares the rules, and more details can be found in the methodology guide.
Since the trackers are duration and sector neutral, the tracking error versus the broader parent indices is minimized. For example, the performance demonstrates a strong correlation between TTIGCU and the US IG Corporate Bond index with an R^2 of 99.5% over the last 12 months. On an intraday basis, the GIP<GO> function can be used to monitor ticking performance of Tradable Trackers (see below).
Other applications of real-time indices include portfolio trading of bonds and the calculation of fair value for credit index futures. Portfolio Managers may leverage Bloomberg’s Portfolio Trading Basket Builder (PTBB<GO>) for an efficient and seamless portfolio trading workflow to replicate a Tradable Tracker basket and quickly gain credit exposure with minimal tracking error, high probability of execution and low trading costs. Alternatively, these real-time indices can be helpful when assessing the theoretical credit index futures price, equal to the underlying index level plus the cost of carry. Utilizing FAIR<GO> with a credit index futures contract loaded, it will display the corresponding Tradable Tracker index where available. While the benchmark index prices daily, Tradable Trackers are designed to tightly track it intraday. FAIR thus shows how much the Tradable Tracker has changed since the last index pricing in the 1D % Chg column. If you plug in that value—or your own expectation of the day’s change—into the amber 1D % Chg field for the index itself, you can calculate an intraday net asset value (iNAV) for the benchmark. The futures fair price and related calculations are updated accordingly, providing a real-time indication of fair value made possible by Bloomberg’s Tradable Tracker indices.
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