Climate CaRD WGBI

Combining climate considerations and carry factor into global sovereign bond indexes

As a well-known concept to practitioners and academics, the carry factor has been leveraged in the currency markets for decades. With the understanding of such FX carry trades becoming established, academic publications have explored this concept cross-markets and showcased evidence of the carry premium in the fixed income asset class.

The global sovereign debt market is one of the largest asset classes in the world, yet fixed income markets have typically lagged other asset classes in relation to ESG integration activities. Sovereign debt investors are exposed to a range of climate risks that are typically not well understood or incorporated in the investment process.

The FTSE Nomura Climate Risk-Adjusted Carry and Roll Down World Government Bond Index Series (FTSE Nomura Climate CaRD WGBI Series) offers a solution that seeks to reflect a targeted exposure to the sovereign bonds in the FTSE Climate Risk-Adjusted World Government Bond Index (FTSE Climate WGBI) by applying carry and roll down optimization. The index measures the performance of fixed-rate, local currency, investment-grade sovereign bonds based on the market capitalization of its index eligible debt in the FTSE World Government Bond Index, as well as by incorporating a tilting methodology that adjusts index weights according to each country’s relative climate risk performance.

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Climate CaRD WGBI graph