There's a New Bond Market Hedge in Town, and This One's Indexed

(Bloomberg) -- A trio of financial markets heavyweights are creating an alternative method for hedging corporate debt.

Exchange operator Cboe Global Markets Inc. is joining BlackRock Inc., the world’s largest asset manager, and index provider IHS Markit Ltd. to offer futures tied to U.S. corporate bond indexes, according to a statement Wednesday. The securities, which will debut in a matter of months, will give institutional investors easily tradable securities to make forward bets in the debt markets and protect their exposure to U.S. credit risk.

The move is part of Wall Street’s ongoing search for better bond market hedging tools. In 2015, Markit overhauled its CDX High-Yield derivative index to bring it more in line with cash notes sold by junk-rated companies with fragile balance sheets.

Cboe’s new futures will be tied to the IHS Markit iBoxx indexes, the same benchmarks used by BlackRock’s iShares iBoxx $ Investment Grade Corporate Bond ETF, which goes by the ticker LQD and has $32 billion in assets, and its iShares iBoxx $ High Yield Corporate Bond ETF, which carries the ticker HYG and has nearly $15 billion in assets.

The securities will likely expand the pool of investors with access to the credit market, despite some ongoing debate about the risks of building easy-to-trade products out of difficult-to-trade instruments, like debt ETFs do.

Bloomberg LP, the parent company of Bloomberg News, also owns global fixed income indexes.

©2018 Bloomberg L.P.

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