Indices for fixed income market on track
View(s):NDB Capital Holdings PLC with India’s CRISIL, a rating and research agency launched a family of fixed income indices early this week
Senior officials from NDB and CRISIL at briefing.
which will measure the performance of government securities of selected maturities.
The fixed income market in developed countries is a sought after investment vehicle by fund managers, Mukesh Agrawal, Senior Director at CRISIL told the Business Times on the sidelines of a media event to introduce the indices. He said that the indices that will be seen in the market will be NDBIB-CRISIL 91 Day T-Bill Index, NDBIB-CRISIL 364 Day T-Bill Index, NDBIB-CRISIL 3 year T-Bond Index and NDBIB-CRISIL 5 year T-Bond Index.
Bond markets in Sri Lanka are being dominated by government securities with comparatively low retail investor participation, analysts observed, noting that with fixed income securities it can be difficult for investors to understand their risk – return. “If there’s a benchmark such as an index, investors can understand the risks,” Mr. Agarwal added. He said that it is impossible to manage what you cannot measure and that appropriate benchmarking practice a critical requirement for all stakeholders. These indices help trustees, fund managers and researchers perform attribution analysis, while helping investors and wealth managers measure performance and take asset allocation decisions, he said.
“This helps investors understand risk-return nature of new funds by evaluating the benchmark and it’s a catalyst for development of Sri Lanka’s government securities market,” he said.
He noted while this indices launch is a recognition of an important asset class, it’s also a representation of market direction and investors’ sentiment. “This indices will enhance trading and liquidity as well as increased participation by Foreign Institutional Investors,” he added. Mr. Agarwal said that like you trade in the stock market, people should be able to look at buyers’ prices, sellers’ prices, quantities that are for sale, quantities that are there for purchase and conduct transactions. “And the rest of the world should be able to see what those prices are,” he added.
Sri Lanka’s fixed income market which comprises Treasury Bills, Treasury Bonds and Corporate Bonds was valued at around Rs 3.2 trillion as at end last month. Since Sri Lanka had much emphasized on this area in the Budget 2013 to attract more investment in to government securities from both local and foreign investors, this was a much needed initiative, noted Vajira Kulatilleke, CEO NDB Capital Holdings.
The indices have been developed and will be maintained by CRISIL Ltd India, a global analytical company specialized in providing ratings, research and policy advisory services.
NDB and CRISIL are said to have carried out wide consultation with market participants, including banks, primary dealers, regulators, money brokers, and fund managers, to obtain feedback and to fine-tune the index construction methodology to suit local market conditions.
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