The ISMA/Fortis Bank indices are a useful tool for relative analysis in the primary market. They provide a clear indication of how bonds are trading in a particular sector, which can affect decisions on pricing a new issue at launch. In the secondary market the indices give traders an impartial means of pricing credit by identifying where bonds may be mis-priced in comparison to the theoretical price for that sector and rating. They also have an application in the risk management area for assessing volatilities and for use in Value at Risk calculations.
The indices are compiled daily by Fortis Bank from data supplied by ISMA, including the features of international bond issues taken from ISMA's CUPID service and end of day prices derived from ISMA member firms and from its TRAX trade reporting system. The spread over the swap curve is then calculated for eight industry sectors, further split down by duration and ratings to give a unique picture of relative value in the international corporate debt market.
Investors can also consult matrix pricing on the ISMA website, this gives a view on credit risk for all sectors by rating, duration and currency.
In future the indices will be extended to cover USD and GBP denominated international debt.
