NASD, Bloomberg Launch Revolutionary Corporate Bond Indices
Washington, D.C. – As part of its effort to demystify the corporate bond market and make it truly accessible to retail investors, NASD announced today that NASD and Bloomberg are jointly launching two unique, unprecedented corporate bond indices – powerful tools that investors can use on a daily basis to gauge overall market direction and to measure the performance of their corporate bond holdings against the broader market.
The NASD-Bloomberg Active Investment Grade US Corporate Bond Index and the NASD-Bloomberg Active High Yield US Corporate Bond Index are the first and only corporate bond indices generated solely from the actual transaction prices of actively traded bonds – not on quotes or estimated prices. That transaction data is derived from NASD's TRACE (Trade Reporting and Compliance Engine), which collects and publicly disseminates transaction data on 100 percent of over-the-counter activity in the entire universe of more than 30,000 corporate bonds. TRACE disseminates price and volume data on approximately 22,000 transactions every day - representing approximately $18 billion in volume every day.
Each index is calculated the evening of every trading day, reflecting transactions through 5:15 p.m. Eastern time. Each index provides index values for Total Return, Price, Yield and Volume, with changes from the previous close. Additional supporting information includes each index's 10 most active bonds, the top 10 leading movers and the top 10 lagging movers. All of the index data will be posted after 5:30 p.m. Eastern time and accessible free of charge at www.nasdbondinfo.com and through www.nasd.com.
The indices will also be available to users of the Bloomberg Professional® service, a provider of data, news and analytics to more than 260,000 subscribers. In addition, in coming days, Bloomberg News will be distributing two daily TRACE-derived corporate bond market reports on its financial wire service to more than 500 news outlets, including many U.S. daily newspapers. One will report the day's values for both corporate bond indices. The second will be a TRACE Daily Market Report, which will include total issues traded, advancers, decliners, unchanged issues, 52-week highs and lows, and dollar volume for the entire corporate bond market and individually for each of the market's three segments – investment grade, high yield and convertible bonds.
"The launch of these bond indices fulfills a major part of NASD's mission to get solid, reliable, neutral information to retail investors," said Doug Shulman, NASD's President of Markets, Services and Information. "Unlike other bond indices that often include bonds that may rarely trade, the NASD-Bloomberg indices reflect actual transactions throughout the most actively traded portion of the market – and 65 percent of that activity is carried out at the retail level."
Shulman noted that the corporate bond market, once thought to be solely the domain of sophisticated institutional investors, is increasingly important to retail investors – especially the 76 million baby boomers who are moving more and more of their assets from equity investments to fixed income investments as they get closer to retirement.
"There is no doubt that the corporate bond market will only grow in size and in importance to individual investors – but it's a market that has been largely a mystery to them," Shulman said. "NASD studies have shown that only 40 percent of investors understand that bond prices fall as interest rates rise. Another 34 percent either thought there is no fee for buying or selling a bond, or they didn't know whether they were paying a fee for bond transactions. NASD believes there is no better way to build investor trust than for markets to operate in total daylight, and that the better investors understand how a particular market works, the more likely they are to participate in it. And that's why these NASD-Bloomberg indices are so important. They're the first fixed income indices geared toward the retail investor as a broad benchmark to gauge market performance."
TRACE, which is owned and operated by NASD, was introduced in July 2002 in an effort to increase price transparency in the U.S. corporate bond market. It is the only regulated intra-day price dissemination service in the over-the-counter corporate bond market. Registered broker-dealers are required to report all corporate bond transactions to TRACE within 15 minutes of execution, and the transaction data is immediately disseminated to the public. In practice, more than 80 percent of trades are reported within five minutes of execution. That real-time transaction data, along with aggregate end-of-day summary statistics and now the NASD-Bloomberg bond indices, are available on NASD's Web site at www.nasdbondinfo.com. TRACE real-time data is also available on the Bond Market Association's Web site at www.investinginbonds.com.
To help close retail investors' knowledge gap about how bonds and bond markets work, NASD earlier this year created a comprehensive on-line learning center called Smart Bond Investing (www.nasd.com/smartbonds). In addition to covering the basics of bond maturity, yield and pricing, Smart Bond Investing offers sections on dealing with risk; how bonds are bought and sold; an overview of the corporate, municipal and government bond markets, and a look at the various types of individual bonds and bond mutual funds. Smart Bond Investing demystifies such bond market terms as coupon rates, call risk, yield-to-worst, TIPS, STRIPS and more – and includes an interactive Accrued Interest Calculator and a Top 10 List of things to consider before investing in bonds or bond funds.
In coming weeks, NASD will add to its bonds-focused online educational resources with an Investor Alert examining the risks and rewards of bond mutual fund investing.
Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2004, members of the public used this service to conduct more than 3.8 million searches for existing brokers or firms and requested almost 190,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com. Investors can also access this service by calling (800) 289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our website at www.nasd.com.