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D UTCH C OMMISSION ON B ONDS A Standing Committee of Dutch Society of Financial Analysts, VBA

D UTCH C OMMISSION ON B ONDS 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.

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D UTCH C OMMISSION ON B ONDS A Standing Committee of Dutch Society of Financial Analysts, VBA

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  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. INTRODUCTIONOctober 2003 “ You cannot please everyone, but constructing a High Yield Bond Index, seems to please nobody … ”

  3. INTRODUCTIONOctober 2003 • Foundation of EMU • Expansion of credit horizon • (beyond Investment Grade) • Moderate inflation and interest rate environment

  4. INTRODUCTIONOctober 2003 Source: Merrill Lynch USD and Euro High Yield Indices

  5. OBJECTIVESOctober 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 MARKETOctober 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 CORRELATIONOctober 2003 Source: PIMCO, Merrill Lynch & Co., Loan Pricing Corporation, Standard & Poor’s, Russell Indices

  8. BENCHMARK SELECTION CRITERIAOctober 2003 • Quality of the index • Transparency • Availability • Consistency • Flexibility • Practical usefulness of the index • Replicability & Investibility • Representativeness • Relevancy • Acceptance

  9. HY BENCHMARKS ANALYZEDOctober 2003 • Index Providers • CSFB • JP Morgan • Lehman Brothers • Merrill Lynch • Citigroup

  10. HY BENCHMARKS ANALYZEDOctober 2003

  11. HY BENCHMARKS ANALYZEDOctober 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 INDICESOctober 2003

  13. FINAL REMARKSOctober 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. INFORMATIONOctober 2003 Telephone/e-mail Rolf-Pieter ter Horst + 31 20 563 8048 rolf-pieter.ter.horst@ingbank.com Chairman Jurgen Aarts + 31 30 257 6183 jurgen.aarts@fortis.com Vice Chairman Irene Ruis + 31 30 232 9212 iruis@spfbeheer.nl Secretary Koos ‘t Hart + 31 20 583 4484 j.thart@sfbgroep.nl Advisor Internet Dutch Society of Financial Analysts (VBA) & www.nvba.nl Dutch Commission on Bonds (DCB)

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