New Zealand fixed income indices are scheduled for a shake-up under proposals put forward by new index manager S&P Dow Jones Indices (S&P).
The mooted changes could see a significant narrowing of the local corporate bond index as well as relatively minor timing changes to the government bond indices.
“Generally speaking our proposals are aimed at aligning the indices to our global fixed income policies and practices,” an S&P spokesperson said.
The most significant change will see the minimum corporate and local government bond size included in the respective indices at least double to $100 million with the option of raising it further to $250 million.
Mark Brown, Harbour Asset Management fixed income portfolio manager, said if S&P opts for the $250 million cut-off “it would create a very narrow index”.
“That may make it easier to replicate but it would also be much less representative [of New Zealand’s corporate bond market],” Brown said. “On the other hand, it would give active managers greater scope for outperformance [against the index].”
S&P said the corporate and local government index proposals, which would also exclude private placements, are “in the interests of liquidity, investibility, and replicability”.
The proposals would also result in new government bonds entering the indices at end-of-month rather than the current practice of including issues at settlement date.
“Managers will have to adjust,” Brown said. “Globally, indices are changed at the end of month – and bond markets tend to do well at the end of each month.”
He said while the S&P proposals are relatively minor “from a technical point of view there are some things bond managers should be aware of”.
The S&P spokesperson said the NZX ANZ Debt Indices (to be renamed the S&P/NZX Fixed Income Indices) “will ‘cut-over’ to us later this year”.
“We will implement any changes necessary to be able to maintain these properly and accurately, balancing the need to align them with our global practices with the need to minimise disruption to the local existing user base,” the spokesperson said.
According to figures from NZX-owned research house FundSource, about $2.5 billion is linked to local fixed income indices.
“We are unable to speculate on any other funds management companies that are not captured within our research,” the NZX said.