Exhbt 514

bond market data bank

Source: The Wall ¡Street Journal, 13 July 2001, C14. Reprinted with permission from The Wall ¡Street Journal, Dow Jones Co., Inc.

Merrill Lynch Convertible Securities Indexes In March 1988, Merrill Lynch introduced a convertible bond index with data beginning in January 1987. This index includes 600 issues in three major subgroups: U.S. domestic convertible bonds, Eurodollar convertible bonds issued by U.S. corporations, and U.S. domestic convertible preferred stocks. The issues included must be public U.S. corporate issues, have a minimum par value of $25 million, and have a minimum maturity of one year.

Global Government Bond Market Indexes

Similar to the high-yield bond market, the global bond market has experienced significant growth in size and importance during the recent 10-year period. Unlike the high-yield bond market, this global segment is completely dominated by government bonds because few non-U.S. countries have a corporate bond market. Once again, several major investment firms have created indexes that reflect the performance for the global bond market. As shown in Exhibit 5.13, the various indexes have several similar characteristics, such as measuring total rates of return, using market-value weighting, and using trader pricing. At the same time, the total sample sizes and the number of countries included differ.

An analysis of performance in this market indicates that the differences mentioned have caused some large differences in the long-term risk-return performance by the alternative indexes.12 Also, the low correlation among the various countries is similar to stocks. Finally, there was a significant exchange rate effect on volatility and correlations.

Composite Stock-Bond Indexes

Beyond separate stock indexes and bond indexes for individual countries, a natural step is the development of a composite series that measures the performance of all securities in a given country. A composite series of stocks and bonds makes it possible to examine the benefits of diversifying with a combination of asset classes such as stocks and bonds in addition to diversifying within the asset classes of stocks or bonds. There are two such series available.

Merrill Lynch-Wilshire U.S. Capital Markets Index (ML-WCMI)

First a market-value-weighted index called Merrill Lynch-Wilshire Capital Markets Index (ML-WCMI) measures the total return performance of the combined U.S. taxable fixed-income and equity markets. It is basically a combination of the Merrill Lynch fixed-income indexes and the Wilshire 5000 common-stock index. As such, it tracks more than 10,000 stocks and bonds. The makeup of the index is as follows (as of July 2001):


Percent of Total

Treasury bonds


Agency bonds

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