Solactive launches Subordinated Bond Index
Germany-based Solactive AG has announced the launch of the Solactive Subordinated Bond Index, designed to track the investment grade subordinated corporate bond market denominated in USD as of May 2014.
The Index is used as an underlying for the db X-trackers Solactive Investment Grade Subordinated Debt Fund (SUBD) which is now listed on the New York stock exchange by Deutsche Bank Asset & Wealth Management.
The Solactive Subordinated Bond Index is comprised of 137 constituents representing 70 parent companies with USD 169 billion in total amount outstanding, for an average duration of 4.14 and an average yield to maturity of 7.08.
To be eligible in the index, bonds must be rated BBB/Baa2 or above. A maximum of five bonds per parent company is allowed. Each index component is weighted according to market value.
Demand for subordinated bonds has increased as a result of the current low interest rate environment since they traditionally offer a higher yield. Yet subordinated bonds also come with a higher level of risk. In the event of default, subordinated bonds are repayable after the other debt has been paid and their recovery rate is lower than that of senior debt.
Astrid Ludwig, Solactive’s head of the bond & complex team, Solactive, comments on the launch: “We are excited to support Deutsche Asset & Wealth Management as they launch another innovative fund tracking a Solactive branded index. Even though this Index includes only Investment Grade bonds, it offered a very good performance of more than 7% since the launch of the index last June.”