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Credit index volume activity continued to soar in 2020, driven
by the extreme H1 volatility that ensued as the Covid19 pandemic
took hold. During the uncertain months of March and April,
investors increasingly turned to tradable index products in their
search for liquidity and price transparency. Tradable indices
enabled investors to efficiently access key segments of the global
credit markets throughout the volatile period, even as liquidity in
underlying positions dwindled, thereby giving investors a way to
trade when they needed it most. Volumes increased across ETFs,
corporate bond futures, and CDS indices.
Exchange Traded Funds
Fixed income ETFs fared well in 2020, with net inflows exceeding
$227bn in 2020. Corporate bond ETFs led the way with $ 106bn of
inflows for the year, however strong flows across sectors
highlighted the strength of the bond ETF ecosystem.
North America
The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
ended the year with $55 billion of total assets under management,
which is 57% higher than at the start of the year. Growth was
driven by $15 billion of net flows along with $5billion from
capital appreciation. For context, 2020 net flows were 15x greater
than the prior year.
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) grew by
a whopping 35%, adding $6 billion in net flows to reach $26 billion
of total AUM. This was the fastest growing year on record, driven
by net flows that were 1.04x higher than 2019.
Europe
The iShares Euro Corporate Bond Large Cap UCITS ETF (IBXLQ),
which tracks the performance of an index composed of liquid Euro
denominated investment grade corporate bonds, reached a total AUM
of $4.6 billion. This is 21% greater than the prior year, equating
more than $221 million of new capital.
The iShares Euro High Yield Corporate Bond UCITS ETF (IHYG)
closed 2020 with $7.7 billion of AUM, a YoY decrease of 9% compared
to 2019 due to $1 billion of net redemptions.
Cboe iBoxx iShares Bond Index Futures
The Cboe iBoxx iShares $ High Yield Corporate Bond Index Futures
(IBHY), the first-of-its-kind futures to track the performance of
USD HY bonds, traded $19 billion in 2020 - 6.1x the volumes of
2019. $3bn traded in December alone, and was the biggest month on
record.
Standardized iBoxx Total Return Swaps
iBoxx TRS traded $95.8 billion in 2020, which was 26.27% less
than the $129.9 billion traded 2019. IBOXHY was the most heavily
traded index, trading $45.6 billion and accounted for 48.3% of all
iBoxx TRS activity. USD and EUR IG were the next two most actively
traded indices, trading $15.1 and $12.4 billion, respectively. EUR
IG was the only index to see iBoxx TRS activity increase YoY, with
activity in 2020 10.80% higher than 2019. USD Lev Loans and EUR HY
decreased the most, with TRS volumes on both indices down 52%
YoY.
CDS Indices
Untranched CDS Index Volumes
Total untranched CDS index volumes across all CDX and iTraxx
Europe indices were $17.0 trillion in 2020, which was 26.4% higher
than the same point last year. Increases were driven by H1 pandemic
volatility, which had volumes 53.7% higher than H1 2019.
Of the CDX Indices, CDX IG was by far the most liquid, trading
$7.4 trillion in 2020 (+26.8% YoY). CDX HY traded $2.3 trillion
(+26.7% YoY), while CDX EM traded $370.9 billion (-3.9% YoY).
Untranched CDS index volumes jumped in Europe as well, with
trading volumes of $7.0 trillion (+27.9% YoY) for the year. iTraxx
Europe Crossover and iTraxx Europe Main traded $1.2tn (+33.2% YoY)
and $5.1tn (+32.2% YoY), respectively.
Tranched CDS Index Volumes
Tranches on CDS indices traded $140.2 billion in 2020, a YoY
increase of 13.9%. The largest tranche market was iTraxx Europe
Main, which had $73.0bn (+13.1% YoY) 2020 volumes. The next two
largest tranche markets were CDX IG and CDX HY, which traded
$31.4bn (+18.0% YoY) and $25.4bn (+28.3% YoY), respectively,
following by iTraxx Europe Crossover, which had $10.5bn (-14.3%
YoY) traded.
CDS Index Options Volumes
$4.3 trillion of CDS index options were traded in 2020, which
was a 9.1% decrease versus 2019. CDX IG and HY option volumes
traded $2.0 trillion (-13.2%) and $385.3 billion (-13.0%),
respectively. iTraxx Europe Main traded $1.5 trillion (-5.7%),
while iTraxx Europe Crossover grew by 22.1% YoY to $329.5
billion.
Conclusion
The growth and depth of liquidity in tradable credit index
products continues to benefit the developing fixed income
ecosystem. They bring standardization, price transparency and trade
efficiency to an otherwise often opaque and fragmented market. In
2020, we saw how in times of stress, these instruments performed as
intended, providing continuous liquid access to key exposures.
Posted 28 January 2021 by Frantz Castor, Index Product Manager, Indices, IHS Markit and
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
