DUTCH COMMISSION ON BONDS

1
DUTCH COMMISSION ON BONDS A Standing Committee of
Dutch Society of Financial Analysts, VBA

• High Yield Bond Indices
• Introduction
• Objectives
• Features of High Yield Market
• Benchmark Selection Criteria
• HY Benchmark Analyzed
• Constrained Indices
• Final Remarks

October 16th, 2003
London
Vereniging van Beleggingsanalisten
2
INTRODUCTION
October 2003

You cannot please everyone, but
constructing a High Yield Bond Index, seems to
please nobody
3
INTRODUCTION
October 2003

• Foundation of EMU
• Expansion of credit horizon
• (beyond Investment Grade)
• Moderate inflation and interest rate
  environment

4
INTRODUCTION
October 2003

Source Merrill Lynch USD and Euro High Yield
Indices
5
OBJECTIVES
October 2003

• To provide a fair, non-judgmental and
• transparant comparison of HY Bond Benchmark
• Indices
• Not to judge the attractiveness of the HY
  market
• Not to give outspoken recommendations

6
FEATURES OF HIGH YIELD MARKET
October 2003

• Low correlation with other asset classes
• Both original HY issues fallen angels
• Public, non-convertible bonds, issued by
• corporates not being in default

7
LOW CORRELATION October 2003

Source PIMCO, Merrill Lynch Co., Loan Pricing
Corporation, Standard Poors, Russell Indices
8
BENCHMARK SELECTION CRITERIA October
2003

• Quality of the index
• Transparency
• Availability
• Consistency
• Flexibility
• Practical usefulness of the index
• Replicability Investibility
• Representativeness
• Relevancy
• Acceptance

9
HY BENCHMARKS ANALYZED
October 2003

• Index Providers
• CSFB
• JP Morgan
• Lehman Brothers
• Merrill Lynch
• Citigroup

10
HY BENCHMARKS ANALYZED
October 2003
11
HY BENCHMARKS ANALYZED
October 2003

• Criteria
• Eligible Currency
• Maturity
• Domicile and Market Type
• Coupon Type and Structure
• Rating
• Size
• Construction Methodology and Pricing
• Data Sources and Availability
• Returns and Composition

12
CONSTRAINED INDICES October 2003

13
FINAL REMARKS October 2003

• Constrained Indices
• Control maximum weights
• Seasoning
• Conclusions
• No outspoken recommendations due to diversity
• Booklet meant to be a useful tool for
  structuring the benchmark
• selection process and sorting out the
  implications of a certain
• choice
• Dialogue needs to be continued in order to
  improve the quality of
• benchmarks

14
INFORMATION
October 2003
Telephone/e-mail Rolf-Pieter ter Horst
31 20 563 8048 rolf-pieter.ter.horst_at_ingba
nk.com Chairman Jurgen Aarts 31 30 257
6183 jurgen.aarts_at_fortis.com Vice
Chairman Irene Ruis 31 30 232 9212
iruis_at_spfbeheer.nl Secretary Koos t Hart
31 20 583 4484 j.thart_at_sfbgroep.nl Advis
or Internet Dutch Society of Financial Analysts
(VBA) www.nvba.nl Dutch Commission
on Bonds (DCB)