Italy and Germany currently represent 45.1% of the €3.8 trillion total market value of debt in the Index, which further opens up the Eurozone bond market to international investors…
Standard & Poor’s announced the launch of the S&P Eurozone Government Bond Index. This comprehensive, market-value weighted index is intended to measure the performance of the “developed” European Government Bond market and thus provide investors with a view across the Eurozone as a whole.
The Index is made up of bonds issued by all those countries within the Eurozone which are considered developed markets under Bank of International Settlements classifications.
James Rieger, Vice President, Standard & Poor’s Indices, said:
“The Eurozone government bond market is a bit smaller than the US Treasury market, but much more complex, principally because there are 16 separate issuers, and likely more in the future. We often see debt from the smaller countries trading at spreads above the largest, more liquid issuers – many investors are keen to capture the yield potential of the Eurozone in its entirety, others focus on the most liquid bonds, but either way, this index provides a comprehensive measure against which to benchmark Eurozone bond investing.
“This index will be used both by investors within the Eurozone and international investors seeking exposure to an increasingly mature bond market, ten years after the Euro’s launch and the establishment of the European Central Bank. This represents one step in S&P’s continuing build out of our global government bond index series.”
The country weightings in the S&P Eurozone Government Bond Index as of 30 October 2009 are Italy (23.3%), Germany (21.8%), France (20.2%), Spain (9.1%), Belgium (6.1%), Greece (5.4%), The Netherlands (5.1%), Austria (3.8%), Portugal (2.4%), Ireland (1.7%) and Finland (1.1%). Overall, 11 of the 16 Eurozone countries are currently represented in the new Index: Cyprus, Luxembourg, Malta, Slovenia and Slovakia do not fulfill the criteria.
All European Government bond types are included, with the exception of European Government Inflation Indexed, Floating Rate, and Zero Coupon Bonds. To qualify for inclusion, the bonds must be denominated in Euros and have a minimum issue size of at least €1 billion, with a maturity greater than or equal to one year.
The Index is divided into a suite of sub-indices that are differentiated by their constituents’ range of maturities. The maturity ranges include: 1-3 years; 3-5 years; 5-7 years; 7-10 years; and 10+ years. For all the ranges, any bond that has an exact time to maturity at either end of the range will be placed in the grouping where it is denoted as the maximum. For instance, a bond with five years to maturity will be a constituent of the 3-5 year sub-index.
The Index will undergo rebalancing on a monthly basis to ensure it remains current. It does not have a set number of constituent bonds, and there is no limit on the proportion of the index that any one country within the Eurozone can represent.
Overall, with over €5.2 trillion of government debt outstanding, the Eurozone is the second largest government bond market in the world, behind the USA ($12.0 trillion) and Japan (Yen 694.2 trillion). Eight other EU states, including Poland and the Czech Republic, have announced they are seeking to join the Eurozone in the coming few years.
Source: ETFWorld – Standard & Poor’s
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