As a result of increasing investor interest in monitoring the performance of Asian dollar bonds eligible under Hong Kongs mandatory provident fund (MPF) program, JPMorgans credit research team has created a new index that will help them do just that.
The index, called MPF JACI, tracks on a daily basis how well eligible bonds from China, Hong Kong, Korea, Malaysia and Singapore are faring in the markets.
To qualify for inclusion the bonds have to be rated at least BBB by Standard & Poors or Baa2 by Moodys Investors Service, in accordance with the HKMPF Authoritys guidelines on credit quality.
Aside from the credit rating, the transactions included must also be at least $300 million in size and be at least one year away from maturity.
The idea for the index was a result of us talking to customers who have started funds under the MPF scheme, explains JPMorgan credit analyst Amy Li. There was no index to help track the performance of more stable securities so we came up with MPF JACI.
The index works like a traditional total return index you put in the price and coupon returns and we come up with the average yield, Li continues. Yesterday that was 6.55%, giving an average spread of 178bp over US Treasuries.
MPF JACI has a market capitalization of $32.9 billion and currently covers 61 bonds, 70% of which are either sovereign or quasi-sovereign issues with the remainder being high profile corporate transactions from the likes of Hutchinson, HK Wharf and Korea Electronics.