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Figure 2 Barclays Capital World Government Inflation-Linked Bond (WGILB) Index Characteristics June 30, 2011 Market Cap Local Bn Market Cap $ Bn Weight % WGILB Number Of Bonds Real Yield (%) Mod Duration $ Unhedged Returns YTD (%) Local Returns YTD (%) Index Rating WGILB US UK Euro Government France Germany Italy Canada Japan Sweden Australia 1-5 year 5-10 year >10 year 1,820.3 106 0.91 10.06 7.69 4.60 By Country/Region 715.9 715.9 39.3% 31 0.86 8.05 5.84 AAA 272.4 437.4 24.0% 17 0.47 16.02 7.02 4.37 AAA 343.0 497.3 27.3% 27 1.74 7.73 3.08 177.4 257.2 14.1% 13 1.21 8.03 11.13 2.83 AAA 50.3 72.9 4.0% 4 0.71 5.23 10.41 2.17 AAA 115.3 167.2 9.2% 10 2.79 8.35 12.26 3.87 A 54.8 56.8 3.1% 6 0.97 16.28 7.61 4.52 AAA 4,450.4 55.1 3.0% 16 0.67 5.32 3.52 3.08 AA 232.3 36.8 2.0% 5 0.92 8.40 11.36 4.52 AAA 19.6 21.0 1.2% 4 2.38 8.34 10.08 5.40 AAA WGILB By Maturity 484.3 484.3 26.6% 30 -0.24 2.82 3.27 570.2 570.2 31.3% 33 0.62 6.81 5.19 765.8 765.8 42.1% 43 1.12 17.07 4.98 Source: Barclays Capital; data as of June 30, 2011. Figure 3 Barclays Capital Emerging Market Government Inflation-Linked Bond (EMGILB) Index Characteristics June 30, 2011 Market Cap $ Bn Weight (%) EMGILB Number Of Bonds Real Yield (%) Mod Duration $ Unhedged Returns YTD (%) Local Returns YTD (%) Index Rating EMGILB LATAM Argentina Brazil Chile Colombia Mexico EEMEA Poland South Africa Turkey Israel ASIA South Korea 1-5 year 5-10 year >10 year 469.1 80 4.92 6.86 5.66 1.96 By Country/Region 343.7 73.3% 52 5.78 6.93 7.39 1.93 16.4 3.5% 5 10.19 5.93 -15.21 -12.40 B 264.1 56.3% 13 6.24 6.69 9.95 3.48 BBB 10.8 2.3% 20 2.92 5.31 1.07 1.20 AA 2.6 0.6% 4 3.52 4.77 12.25 3.65 BBB 49.7 10.6% 10 3.35 8.98 6.28 1.05 BBB 121.4 25.9% 26 2.49 6.68 1.13 1.97 6.7 1.4% 2 2.71 6.61 13.23 5.21 A 31.3 6.7% 6 2.51 9.41 2.49 5.02 A 41.9 8.9% 8 2.28 4.08 -3.92 1.38 BB 41.6 8.9% 10 2.54 7.26 4.18 0.09 A 3.9 0.8% 2 1.48 6.58 11.25 4.66 3.9 0.8% 2 1.48 6.58 11.25 4.66 A EMGILB By Maturity 195.5 41.7% 34 4.78 2.40 6.94 3.71 99.9 21.3% 21 4.59 5.80 4.93 1.25 173.7 37.0% 25 5.04 12.50 4.59 0.32 Source: Barclays Capital; data as of June 30, 2011. www.journalofindexes.com September / October 2011 25
Figure 4 Universal Government Inflation-Linked Bond (UGILB) Index Composition Universal Government Inflation-Linked Bond Index World Government Emerging Markets Government Other Australia 0.91% Canada 2.47% France 11.07% Italy 7.21% Germany 3.17% Sweden 1.65% UK 19.51% US 30.93% Japan 2.45% Argentina 0.72% Brazil 11.05% Chile 0.43% Colombia 0.11% Mexico 2.38% Poland 0.29% South Africa 1.34% Turkey 1.85% South Korea 0.17% Israel 1.81% Greece 0.47% Source: Barclays Capital; data as of June 30, 2011. Figure 5 Universal Government Inflation-Linked Bond (UGILB) Index Characteristics June 30, 2011 Market Cap $ Bn Weight (%) In UGILB Number Of Bonds Real Yield (%) Mod Duration $ Unhedged Returns YTD (%) UGILB WGILB EMGILB Others (Greece) 2,300.0 188 1.57 9.41 7.23 1,820.3 79.1% 106 0.91 10.06 7.69 469.1 20.4% 80 4.92 6.86 5.66 10.6 0.5% 2 9.83 10.41 -2.51 Source: Barclays Capital; data as of June 30, 2011. debt outstanding. Due to the large concentration of Brazil in the market-value-weighted EMGILB, the more popular choices among fund managers are constrained versions of the EMGILB Index that cap an individual country’s exposure at 25 percent of the benchmark. Other popular variants are the EMGILB Constrained ex-Colombia ex-Argentina 7 Index, which excludes the two named markets, and the EM Tradable Inflation Linked Index (EMTIL), which measures a narrower universe of more liquid EM inflation-linked bonds. 8 Blended Developed And Emerging Markets IL Debt (UGILB) The Universal Government Inflation-Linked Bond (UGILB) Index is Barclays Capital’s broadest measure of the government inflation-linked bond universe. The UGILB presently has a market capitalization of around $2.3 trillion and combines the country coverage of the WGILB and EMGILB. 9 WGILB represents 79.1 percent of the universe by market value, with EM inflationlinked bonds representing 20.4 percent. Breakeven Inflation Indexes The growth of inflation-linked products has also created the opportunity for fixed-income investors to express directional views on inflation expectations and real rates. Breakeven inflation, which can be defined as the rate of inflation that will equate the returns on an inflation-linked bond and a “comparator” nominal bond of equal term, is central to most derivations of inflation expectations from market prices. The Fisher equation estimates the relationship between interest rates and inflation as follows: (1 + Nominal Interest Rate) = (1 + Real Interest Rate) x (1 + Inflation Rate) Breakeven inflation indexes, which measure returns of long inflation-linked bonds/bond indexes and short nominal comparator bonds/bond indexes, can be used as benchmarks for passive as well as active managers. Inflation Swap Indexes The growth of the international inflation-linked government bond market has also facilitated the growth of the inflation derivatives market. Inflation swaps enable one party to pay or receive inflation from another and are a common instrument used by the LDI community both to measure risk and to set performance targets for future obligations. The Barclays Capital inflation swap indexes are designed to replicate the performance of a portfolio investing in two different types of inflation swap: zero-coupon inflation swaps and real rate swaps. The former is an exchange of an inflation-linked cash flow and a fixed cash flow at maturity with no interim payments, whereas the real rate swap involves an exchange of Libor-based payments with a fixed real payment, plus payments for realized inflation. Inflation swap indexes can be created for almost any 26 September / October
Page 1 and 2: The Case for Emerging Market Corpor
Page 3 and 4: Contributors Roger Aliaga-Díaz Rog
Page 5 and 6: Jim Wiandt Editor jwiandt@indexuniv
Page 7 and 8: FREE SUBSCRIPTION OFFER! The Journa
Page 9 and 10: Editor’s Note Dueling Topics Jim
Page 11 and 12: The Case For Emerging Market Corpor
Page 13 and 14: Figure 2 GDP (%) 300 250 200 150 10
Page 15 and 16: Figure 8 Historical Emerging Market
Page 17 and 18: Figure 12 Figure 14 Spreads Over Bu
Page 19 and 20: Individual Country Or Broad-Market
Page 21 and 22: Figure 3 Annual Real GDP Per Capita
Page 23 and 24: Inflation-Linked Index Products: An
Page 25: Inflation-Linked Government Bond Ma
Page 29 and 30: Inflationary Quandaries: A Roundtab
Page 31 and 32: So, on the one hand, we have a very
Page 33 and 34: experience food and energy price in
Page 35 and 36: government is such a big part of th
Page 37 and 38: Selection Bias How an index chooses
Page 39 and 40: eturns, short-sell constraints, tax
Page 41 and 42: Figure 2 Comparative Returns For Fo
Page 43 and 44: Figure 3 Comparative Characteristic
Page 45 and 46: These two portfolios exhibit the la
Page 47 and 48: In Perspective Considerations For T
Page 49 and 50: Talking Indexes From A Provider’s
Page 51 and 52: News MSCI Says Korea, Taiwan Still
Page 53 and 54: News nal risk control series, the n
Page 55 and 56: News commercial and residential ABS
Page 57 and 58: News sure the underlying contracts
Page 59 and 60: Global Index Data 58 September / Oc
Page 61 and 62: Index Funds 60 September / October
Page 63 and 64: Dow Jones U.S. Industry Review 62 S
Page 65 and 66: Test Your Skills Inflation Constern
Page 67 and 68: BND Vanguard Total Bond Market ETF

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