IHS Markit Credit Indices - 2020 Volumes Review

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 Nicholas Godec, CFA, Index Product Manager, Tradable Indices

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