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Journal of Indexes

Indexes, Derivatives For European Bonds

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Eurobonds have been getting a lot of attention from the indexing community of late, from Merrill Lynch, Reuters, ParisBourse and Deutsche Börse, among others.

Merrill Lynch has created a set of European corporate and sovereign bond indexes specifically for the purpose of derivatives trading. The corporate index is designed to track closely with the broader Merrill Lynch EMU Corporate Bond Index; however, only about 30 corporate bonds have been included in the new index from the several hundred in the larger index. The new sovereign index tracks the Merrill Lynch Euro-Sovereign Index and contains less than 30 of the securities included in the broader index. Pricing will be provided every 15 minutes.

ParisBourse will trade futures contracts on the new indexes - Eurocorp contracts based on the corporate index and Eurosov contracts based on the sovereign index.

In competition with Merrill Lynch and ParisBourse, Deutsche Börse has joined with five major international banks to create a new family of real-time eurobond indexes. The banks - ABN Amro, BNP Paribas Group, Deutsche Bank, Dresdner Bank and investment banker Morgan Stanley Dean Witter -will all provide pricing information for the new indexes. Deutsche Börse's earlier set of bond indexes, the Box indexes, used a single pricing source.

The exchange planned to launch the first index in the series in the second quarter of 2000, an index of government bonds from countries in the eurozone. The family of indexes is also expected to eventually include such bond classes as Jumbo Pfandbriefe and supranationals.

Like Merrill Lynch and Paris Bourse, Deutsche Börse hopes to launch products linked to the indexes.

In February, Reuters Group launched the Euro Corporate Bond Index, otherwise known as CORPTOP, a real-time index tracking euro-denominated corporate bonds. At the same time Reuters also launched eight government bond indexes for the United States, Sweden, Canada, Switzerland, Denmark, Japan, Australia, and the United Kingdom. The new government indexes join the GOVTOP series which also has individual real-time government indexes for all eleven euro countries.

 

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