Solactive AG has launched the Solactive US 7-10 Year Treasury Bond Index comprised of US Treasuries with a time to maturity of 7 to 10 years. The total return version of the Index has been licensed for the Horizons US 7-10 Year Treasury Bond ETF (HTB) listed today on the Toronto stock exchange.
There has been a hunt for yield from many in the US market over the past few years, generated by both extensive quantitative easing programs and a low interest rate environment. As a result, funds allocation has moved towards either riskier assets or longer dated fixed income instruments.
Now that the American economy is showing signs of a solid growth, with a significant decrease of the unemployment rate over the last three years and a GDP growth of 2.2% in Q4 2014, many investors are looking for a trade-off between risk and return. This is typically offered by mid-term treasuries, which have a lower sensitivity to interest-rate changes than long term bonds and higher yields than short term bonds.
Canadian investors have also shown an increasing interest for US Treasuries as they currently provide a higher yield than Canadian government bonds (1.9% versus 1.3% for 10 year bonds), while the US-dollar has been getting stronger against most other currencies globally, including the Canadian dollar.
Astrid Ludwig, Head of Bond & Complex Indexing, Solactive, said: “We are delighted to launch our second bond index for Horizons, following the Solactive Canadian Select Corporate Bond Index for the HBB ETF last year, and we hope to further strengthen our relationship with this key player in the Canadian space as Solactive keeps expanding in North America.”
Howard Atkinson, President of Horizons ETF Management (Canada), added: “In a low interest rate environment, such as this one, taxes charged on interest income from bonds will erode returns. However, by using an innovative total return swap structure, as HTB and HBB do, investors in non-registered accounts can ensure they are receiving the total compounded return of the underlying bond index, without the usual tax consequences that can occur from investing in this asset class directly.”
The Solactive US 7-10 Year Treasury Bond Index is composed of Treasury Bonds and Treasury Notes of the US government denominated in USD, with a current amount outstanding of at least 250m USD and an effective time to maturity from 7 to 10 years. Inflation linked bonds, callable bonds, floating rate and local government bonds are excluded from the Index. All index components are weighted according to their market value.
Below some data on the Solactive US 7-10 Year Treasury Bond Index as of 31st of March 2015.
Yield | 1.78 |
Duration | 7.78 |
Average Coupon | 2.53 |
Average Term | 8.7 |
The Index is calculated as a total return and price return version. The composition of the Solactive US 7-10 Year Treasury Bond Index is rebalanced on a monthly basis. The Index starting value was 10,000 on the 12th of March 2015. Back-tested historical data is available since 30th of January 2010.
For more information on the methodology, please visit the Solactive US 7-10 Year Treasury Bond Index webpage.