db Index Development
12 February 2015
DBIQ Index Guide
DB Global Short Maturity High Yield Bond Index
Summary
The DB Global Short Maturity High Yield Bond Index (“Index”) tracks the performance of a selected basket of short term US dollar denominated, high yield debt publicly issued globally, including sovereign, quasi-government and corporate bond securities.
The index is rebalanced quarterly and re-weighted annually. Transaction cost is deducted as a running cost.
The inception day of the index is 29-Feb-2008.
The indices covered in this guide are:
DB Global Short Maturity High Yield Bond Index, published to Bloomberg under ticker: DBLQSTHY
Index Development Contacts: London: +44 (0)207 545 0505 Hong Kong: +852 2203 6786 New York: +1 212 250 8998
db Index Development
12 February 2015
2
Index Rules
The DB Global Short Maturity High Yield Bond Index (“Index”) tracks the performance of a selected basket of short term US dollar denominated, high yield debt publicly issued by sovereign, quasi-government and corporate globally.
The index rebalances quarterly, i.e. last business day in February, May, August and November each year. Selection happens at the close 5 business days1 before the last business day of the rebalancing period (For historical calculation prior
to index launch date, the selections were done on the same day as the relevant rebalancing day). The Index Membership can be generated by applying the following criteria to all bonds outstanding:
Market Issue: sovereign, quasi-government, corporate bonds. The following market types are excluded: 144As, private placements, municipal bonds, Brady bonds, restructured bonds;
Country of issuance or country guarantor: The following countries/regions are excluded: Channel Islands, Bermuda, Bahamas, Isle of Man, Cayman Islands;
Bond Type: Fixed coupon bonds only. The following bond types are excluded: zero coupon bonds, floating/variable coupon bonds, convertibles, inflation-linked bonds, putable bonds, sinkers, perpetual bonds, accrued only bonds
Collateral Type: Covered is excluded
Credit Rating: Must be rated by at least one of these 3 rating agencies: Standard & Poor’s, Moody’s or Fitch. The composite rating calculated from available ratings among the three should be high yield, i.e. composite DB rating between C and BB+ (both inclusive). Please see “Composite and Average Rating Calculation” section for composite rating calculation.
Time to maturity: Must have a remaining life of 3 months to 36 months, both inclusive, as of the corresponding rebalancing day. Any bond in the index for the previous rebalancing period and has less than 3 months remaining at rebalancing will be kept in the index until maturity.
Currency: Must be US Dollar denominated
Amount Outstanding: Bond with at least $100 million for short term debt (issued with maturity of 3 years or less) and at least $250 million for long term seasoned debt (issued with a total life of longer than 3 years) are eligible. Settlement: Must be able to settle in US, at Euroclear or both
Cash from coupon payment, matured defaulted and called bonds will be kept in the index without interest till end of each month2. On the last business day of a non quarterly rebalancing month, the cumulated cash shall be invested into
remaining bonds proportionally. If it is a quarterly rebalancing month, the cumulated cash plus proceed from leaving bonds shall be invested into new bonds. Transaction cost at month end is deducted as a running cost.
If a Sovereign defaults, all bonds of that country otherwise satisfying the eligibility criteria will be removed from the index. If a quasi-government or corporate defaults, only the bonds of that entity are removed; the bonds of other entities from the same country will remain provided they meet index eligibility criteria. Entities removed due to default provisions are not allowed to re-join the index until the next annual rebalancing.
1
Prior to March 2015 the selection occurred four business days before the 1st. day in the new rebalancing period.
2 Cash is kept in the index till end of each quarter from 28-Feb-2008 till 31-May-2013. Cash cumulated from end of
1-Jun-2013 till 31-Jul-1-Jun-2013 is reinvested to the remaining bonds proportionally. On 30-Aug-1-Jun-2013, cash cumulated from 1-Aug-2013 till 30-Aug-1-Aug-2013 along with proceed from leaving bonds are re-invested into new entering bonds equally. For time period after this quarter, cash re-investment follows the general rules.
3
Weights Calculation
Bond weights are calculated differently at February rebalancing (annual rebalancing) and non-annual rebalancing. Weights calculation at annual rebalancing:
Equal weight is given to each selected bond as the initial weight. Cumulative weight for bonds issued by each country is calculated. If cumulative weight for any country exceeds 40%, the cumulative weight for that country is capped at 40% which is distributed equally to all of the bonds in the country. The remaining weight is equally distributed to all remaining bonds in the index.
Weights calculation at non-annual quarterly rebalancing:
Weights for any bond that is in the previous rebalancing period are kept unchanged. Cumulative weights from the leaving bonds, redemption value from matured bonds as well as coupon payments are distributed to each new joiner equally.
Weights calculation at non-rebalancing month-end:
Relative weights of the remaining bonds are kept as is and re-normalized so that they add up to 100%.
Prices
The primary pricing sources for this index are Interactive Data (IDC), Reuters/EJV and Deutsche Bank (DB) market makers (traders). Other third party pricing sources are used in the verification process and also used when prices from the primary sources are unavailable for a particular bond and date. DB does not use algorithm to automatically generate or incorporate third party pricing sources.
Mid prices are used to calculate index end of day (EOD) levels. Bid and ask spread prices are used to deduct transaction cost.
Composite and Average Rating Calculation
Bond ratings from Standard and Poor’s, Moody’s and Fitch are mapped to numerical ratings between 1 and 22 as below:
SP Moody Fitch Numerical
AAA Aaa AAA 1
AA+ Aa1 AA+ 2
AA Aa2 AA 3
AA- Aa3 AA- 4 A+ A1 A+ 5 A A2 A 6 A- A3 A- 7 BBB+ Baa1 BBB+ 8 BBB Baa2 BBB 9 BBB- Baa3 BBB- 10 BB+ Ba1 BB+ 11 BB Ba2 BB 12 BB- Ba3 BB- 13 B+ B1 B+ 14 B B2 B 15 B- B3 B- 16 CCC+ Caa1 CCC+ 17 CCC Caa2,caa CCC 18 CCC- Caa3 CCC- 19 CC Ca CC 20
db Index Development
12 February 2015
4
C C C 21
D,SD D D,DD,DDD 22
Composite numerical rating of a bond is calculated as the average numerical ratings from all available ratings, rounded to signal digit, with .5 rounded up. The composite numerical rating can then be mapped to a DB composite rating in string as below: Numerical DB Rating AAA 1 AA+ 2 AA 3 AA- 4 A+ 5 A 6 A- 7 BBB+ 8 BBB 9 BBB- 10 BB+ 11 BB 12 BB- 13 B+ 14 B 15 B- 16 CCC+ 17 CCC 18 CCC- 19 CC 20 C 21 D 22
Index Calculation
Index level is calculated as:Weights at annual rebalancing
At annual rebalancing, weight for bond i is calculated following below steps:
If COUNTRY J
r
W
W
(
)
max
COUNTRY Jr
W
W
0(
)
max
)
(
)
(
/
)
(
)
(
)
(
r
IL
r
W
r
P
r
AI
r
N
i i i i)
(
)
(
)
(
)
(
)
(
)
(
t
N
r
P
t
AI
t
CPN
t
C
t
IL
i i i i)
(
/
1
)
(
0r
n
r
W
i J i i Jr
W
r
W
0(
)
0(
)
J J NONr
W
W
(
)
1
max
5
For each bond in country J, the weight is calculated as:For each bond not issued by country J, the weight is calculated as:
Weights at non-annual quarterly rebalancing
Weight for staying bond i at non-annual rebalancing is calculated as:
Weight for new joiner i at non-annual rebalancing is calculated as:
Weights at non-rebalancing month-end
Weight for staying bond i at non- rebalancing month-end is calculated as:
Cost
On day t, running cost is calculated as:
Running cost rate3 for t is calculated as:
)
(
r
W
i is the beginning weight for the new rebalancing period, which has been described separately for annual rebalancing and non-annual rebalancing as above;)
(
r
W
STAYi is the ending weight in current month. It is calculated as:
For any new bond,
W
STAY(
r
)
i is 0. Where:
3For historical cost rate till the end of May 2013, proxy cost rates are applied. Comparable index a bid-ask spread of 0.5 is applied with an assumption of 10% turnover at each quarterly rebalancing. Accrued interests are ignored in the calculation.
)
(
/
)
(
)
(
r
W
r
n
r
W
i J J J)
(
/
)
(
)
(
r
W
r
n
r
W
i NON J NON J NON J)
(
/
)
(
)
(
)
1
(
)
(
r
N
r
P
r
AI
r
IL
r
W
iSTAY i iSTAY iSTAY)
(
/
)
(
1
)
(
r
W
r
n
r
W
STAY NEW i NEW i)
(
)
(
)
1
(
/
)
(
)
(
)
1
(
)
(
r
N
r
P
r
AI
r
N
r
P
r
AI
r
W
iSTAY i iSTAY iSTAY j jSTAY STAYj)
1
,
(
/
)
(
)
(
)
(
t
CR
r
t
r
D
r
r
C
)
(
)
(
/
)
(
)
(
1
)
(
)
(
)
(
r
IL
r
W
r
P
r
AI
r
P
r
AI
r
CR
i iBID i iASK i)
(
)
(
,
0
max
)
(
r
W
r
W
r
W
i i iSTAY)
(
/
)
(
)
(
)
1
(
)
(
r
N
r
P
r
AI
r
IL
r
W
iSTAY i i idb Index Development
12 February 20156
)
(
t
IL
Index level on day t)
(
r
IL
Index level on previous month-end r)
(
r
N
i Notional of bond i calculated on previous month-end r)
1
(
r
N
i Notional of bond i calculated on the second last month-end r-1)
(
,
r
P
iBID Clean bid price of bond i on previous month-end r)
(
,
r
P
iASK Clean ask price of bond i on previous month-end r)
(
r
P
i Clean mid price of bond i on previous month-end r)
(
t
P
i Clean mid price of bond i on day t)
(
r
P
iSTAY Clean price of staying bond i on previous month-end r)
(
r
AI
i Accrued interest of bond i on previous month-end r)
(
t
AI
i Accrued interest of bond i on day t)
(
r
AI
iSTAY Accrued interest of staying bond i on previous month-end r)
(
t
CPN
i Cumulative coupon paid by bond i between previous month-end r (excluded) and t (included))
(
r
W
i Weight of bond i calculated on previous month-end r)
(
0
r
W
i Initial weight of bond i calculated on previous month-end r)
(
0
r
W
J Initial cumulative weight of bonds issued by country J on previous month-end r)
(
r
W
J Final cumulative weight of bonds issued by country J on previous month-end r)
(
r
W
NON J Final cumulative weight of bonds issued by other countries than J calculated on previousmonth-end r
)
(
r
W
i J Weight of i issued by country J calculated on previous month-end r)
(
r
W
i NON J Weight of bond i issued by other countries than J calculated on previous month-end r)
(
r
W
iSTAY Weight of staying bond i calculated on previous month-end r)
(
r
W
iNEW Weight of new bond i calculated on previous month-end r)
(
t
W
i Current weight of bond i on day tCOUNTRY
W
7
)
(
r
n
J Number of bonds issued by country J selected on previous month-end r)
(
r
n
NON J Number of bonds issued by other countries than J selected on previous month-end r)
(
r
n
NEW Number of new bonds selected on previous month-end r)
(
r
n
Number of bonds selected on previous month-end r)
(
r
CR
Running cost rate for the month immediately after r)
(
t
C
Running cost charged on day t)
1
,
(
r
r
D
Total number of calendar days between the previous month-end and the next month-end, r+1db Index Development
12 February 2015
8
Global Disclaimer
The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). The information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Deutsche Bank makes no representation as to the accuracy or completeness of such information.
Deutsche Bank may engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this research report. In addition, others within Deutsche Bank, including strategists and sales staff, may take a view that is inconsistent with that taken in this research report.
Deutsche Bank may be an issuer, advisor, manager, distributor or administrator of, or provide other services to, an ETF included in this report, for which it receives compensation.
Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Prices and availability of financial instruments are subject to change without notice. This report is provided for informational purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. Target prices are inherently imprecise and a product of the analyst judgement.
In August 2009, Deutsche Bank instituted a new policy whereby analysts may choose not to set or maintain a target price of certain issuers under coverage with a Hold rating. In particular, this will typically occur for "Hold" rated stocks having a market cap smaller than most other companies in its sector or region. We believe that such policy will allow us to make best use of our resources. Please visit our website at http://gm.db.com to determine the target price of any stock.
The financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed investment decisions. Stock transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the investment.
Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.
Past performance is not necessarily indicative of future results. Deutsche Bank may with respect to securities covered by this report, sell to or buy from customers on a principal basis, and consider this report in deciding to trade on a proprietary basis.
Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk. The appropriateness or otherwise of these products for use by investors is dependent on the investors' own circumstances including their tax position, their regulatory environment and the nature of their other assets and liabilities and as such investors should take expert legal and financial advice before entering into any transaction similar to or inspired by the contents of this publication. Trading in options involves risk and is not suitable for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized Options," at
http://www.theocc.com/components/docs/riskstoc.pdf If you are unable to access the website please contact Deutsche Bank AG at +1 (212) 250-7994, for a copy of this important document.
The risk of loss in futures trading and options, foreign or domestic, can be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be incurred that are greater than the amount of funds initially deposited.
Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor's home jurisdiction. In the U.S. this report is approved and/or distributed by Deutsche Bank Securities Inc., a member of the NYSE, the NASD, NFA and SIPC. In Germany, this report is approved and/or communicated by Deutsche Bank AG, a joint stock corporation with limited liability incorporated in the Federal Republic of Germany with its principal office in Frankfurt am Main. Deutsche Bank AG is authorised under German Banking Law (competent authority: European Central Bank) and is subject to supervision by the European Central Bank and by BaFin, Germany’s Federal Financial Supervisory Authority. In the United Kingdom, this report is approved and/or communicated by Deutsche Bank AG acting through its London Branch at Winchester House, 1 Great Winchester Street, London EC2N 2DB. Deutsche Bank AG in the United Kingdom is authorised by the Prudential Regulation Authority and is subject to limited regulation by the Prudential Regulation Authority and Financial Conduct Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and regulation by the Financial Conduct Authority are available from us on request. This report is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. This report is distributed in Singapore by Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch (One Raffles Quay #18-00 South Tower Singapore 048583, +65 6423 8001), and recipients in Singapore of this report are to contact Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch in respect of any matters arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and regulations), Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch accepts legal responsibility to such person for the contents of this report. In Japan this report is approved and/or distributed by Deutsche Securities Inc. The information contained in this report does not constitute the provision of investment advice. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa: 1998/003298/10). Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche Bank's prior written consent. Please cite source when quoting.
