A distinguishing feature of multi-currency fixed income benchmarks is their approach to local market inclusion. There are a number of dimensions across which global debt markets can be evaluated to determine how they are represented as peer groups in broad-based benchmarks including market size, credit rating, asset type, designation as an emerging or developed market, and degree of market accessibility.
Since 2003, FTSE Russell has maintained an evidence-driven equity country classification framework, which has been used by investors to assess the eligibility of equity markets across the full spectrum of country classifications, spanning from frontier through emerging to developed market status. To enhance the foundation of our benchmarking approach, FTSE Russell has implemented a similar robust and process-oriented framework for local currency, fixed-rate, nominal fixed income government markets that includes a scoring system to assign a Market Accessibility Level for each market. The transparent nature of assignment of these levels allows engagement with central banks and regulators in those countries where the market is being considered for potential reclassification, and provides portfolio managers and asset allocators with a clear view of expected future index evolution.
The framework will be incorporated in the methodology for the FTSE World Government Bond Index (WGBI), FTSE Emerging Markets Government Bond Index (EMGBI), and indexes that explicitly derive their membership from them, effective March 30, 2019. FTSE Russell intends to evolve and expand the fixed income country classification process to other fixed income universes, such as inflation-linked bonds and credit sectors.
We welcome feedback from all stakeholders on our approach to ensure it continues to meet their needs.
The Country Classification Framework Annoucement can be viewed using the following link Country Classification Framework Announcement.