State Street Global Advisors has launched a new fixed income ETF in the US providing exposure to high-quality USD corporate bonds with greater-than-average liquidity relative to the broad market.
The ETF targets corporate bonds with greater-than-average liquidity relative to the broad market.
The SPDR MarketAxess Investment Grade 400 Corporate Bond ETF (LQIG US) has been listed on NYSE Arca with an expense ratio of 0.09%.
According to SSGA, LQIG offers investors credit exposure with the potential for tighter bid-ask spreads, lower premium/discounts, and more transparency into the underlying holdings’ real-time valuations.
Rory Tobin, Global Head of SPDR ETF Business at State Street Global Advisors, said: “The growth of electronic bond trading volume coupled with the increasing adoption of fixed income ETFs is bringing the benefits of bond liquidity to all investors.
“Given State Street’s heritage as a liquidity leader in the ETF market, we’re excited to be working with MarketAxess, one of the world’s largest electronic fixed income trading venues, to launch LQIG. This innovative SPDR ETF is designed to provide bond investors with access to US corporate bonds with higher relative liquidity and tradability.”
Methodology
The fund is linked to the MarketAxess US Investment Grade 400 Corporate Bond Index which selects its constituents from a universe of fixed-rate and zero-coupon US dollar-denominated corporate bonds.
Eligible bonds must be rated investment-grade and have at least $300 million par outstanding and a time to maturity greater than two years.
The methodology harnesses MarketAxess’s proprietary liquidity and pricing data to create an index that combines actionable liquidity with broad market exposure.
The index first utilizes the firm’s Composite Price Plus (CP+) algorithmic pricing engine which provides an indication of the bid and offer price valuations of a given bond. If the CP+ pricing algorithm does not have access to enough liquidity inputs for a bond, it will not generate bid and offer price valuations and the bond will not be eligible for inclusion in the index.
Bonds in the universe are also assigned a Relative Liquidity Score which rates a bond’s liquidity relative to those with similar risk and return characteristics. Relative Liquidity Scores range from 1 to 10 with bonds required to have a score of at least 7 to remain in the index.
From the screened universe, the index then selects the 400 bonds with the highest par value amounts outstanding. Constituents are weighted by market value while capping the weight of any single issuer at 4% and limiting any deviation in sector weight relative to the broad universe to 5%.
The index is reconstituted and rebalanced on a monthly basis.
Chris Concannon, President and Chief Operating Officer at MarketAxess, said: “MarketAxess has a unique view into the traditionally fragmented and less liquid fixed income market. We are leveraging our proprietary data sources to construct an index with improved liquidity, transparency, and a high availability of the constituent bonds.”
Kat Sweeney, Head of Index and ETF solutions at MarketAxess, added: “We’ve seen in our data how index products like ETFs are transforming the bond market, and we believe they will be an increasingly important driver of the market. Our index prioritizes tradability and liquidity. By defining the eligible bond universe by liquidity factors, we can help reduce the cost of implementation, increase two-sided market participation, and improve transparency without deviating from traditional market performance measures.”