Citigroup Global Fixed-Income Index Catalog ... - The Yield Book

August 31, 2006Citigroup Global Fixed-Income Index Catalog — 2006 EditionWorld Government Bond Index (WGBI)At present, the World Government Bond Index (WGBI) includes the 22 governmentbond markets of Australia, Austria, Belgium, Canada, Denmark, Finland, France,Germany, Greece, Ireland, Italy, Japan, the Netherlands, Norway, Poland, Portugal,Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States.Market capitalization and investability criteria determine market eligibility. Amarket’s eligible issues (see Figures 11 and 12) must total at least US$20 billion, € € 15billion, and ¥2.5 trillion for the market to be considered eligible for inclusion. Withthe advent of EMU, the euro area is treated as a single market and individual EMUgovernment debt markets are not subject to market-size criteria. We impose aminimum credit quality of BBB-/Baa3 by either S&P or Moody’s for all issuers toensure that the WGBI remains an investment-grade benchmark.In addition, we consider barriers to entry a reason for exclusion. A market beingconsidered for inclusion should actively encourage foreign investor participation andshow a commitment to its own policies. Once the market satisfies the market-size,credit, and barriers to entry criteria for three consecutive months, it is added to theWGBI beginning with next month’s profile.We have established guidelines by which markets exit the index. When the marketcapitalization of eligible issues falls below half of all entry-level market-size criteriafor three consecutive months, the market will be removed from the next month’sprofile and moved to the Additional Market Indexes. In addition, any market that nolonger satisfies other inclusion criteria — credit or barriers to entry — will also moveto the Additional Market Indexes.We also track a series of markets called the Additional Market Indexes. Theseindexes include bond markets that do not at present qualify for inclusion in theWGBI based on the criteria outlined above. Although the Additional Market Indexesstill carry the “waiting room” concept, this does not imply that the country is readyfor inclusion into the WGBI, but instead that the market is tracked. To join WGBI,the market must satisfy size, credit, and barriers to entry requirements. A countrymay stay in Additional Markets because it discourages foreign ownership, forexample, even if it meets the size and credit criteria. Once a market has met all threerequirements, an announcement will be made and the three-month waiting periodwill begin.The composition of the WGBI has changed considerably since its introduction.Figure 13 reviews the chronological events affecting the construction or calculationof this index.Citigroup Index LLC 17