Markit Iboxx ABF Guide

Markit iBoxx ABF
Index Guide
November 2008
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Contents
1 Summary ............................................................................................................................ 6
2 Bond selection rules and index re-balancing ..................................................................... 7
2.1 Local bond index selection criteria ............................................................................... 7
2.1.1 Bond type ............................................................................................................. 7
2.1.2 Credit rating requirement and issuer classification.............................................. 7
2.1.3 Bond life at issuance.......................................................................................... 11
2.1.4 Time to maturity ................................................................................................. 11
2.1.5 Amount outstanding ........................................................................................... 12
2.1.6 Limit on the number of issues per quasi sovereign issuer................................. 12
2.2 Market weights............................................................................................................ 13
2.2.1 Background........................................................................................................ 13
2.2.2 Market weight composition ................................................................................ 13
2.2.3 Adjustment factors ............................................................................................. 14
2.2.4 Combined adjustment factor.............................................................................. 14
2.2.5 Review of individual market weights.................................................................. 15
2.2.6 Current weights.................................................................................................. 15
2.2.7 Historical weights ............................................................................................... 15
2.3 Index re-balancing procedure..................................................................................... 16
3 End-of-day price consolidation procedure........................................................................ 17
3.1 Price contribution ........................................................................................................ 17
3.2 Automated pre-consolidation price quality control processes .................................... 17
3.2.1 Stand-Alone Check (First Filter) ........................................................................ 17
3.2.2 Comparative check (Standard level vs. warning level vs. maximum permitted
level) 18
3.3 iBoxx Consolidation Algorithm.................................................................................... 21
3.4 Publication of iBoxx prices.......................................................................................... 21
4 Data for iBoxx ABF Index Calculation .............................................................................. 22
4.1 Static Data .................................................................................................................. 22
4.2 FX rates ...................................................................................................................... 22
4.3 Bond and Index Data.................................................................................................. 22
4.4 Index history ............................................................................................................... 22
4.5 Settlement Conventions ............................................................................................. 22
5 Index Formula .................................................................................................................. 23
5.1 Index and analytics weightings................................................................................... 23
5.1.1 Adjusted amount outstanding ............................................................................ 23
5.1.2 The redemption factor F..................................................................................... 24
5.2 Treatment of special (intra-month) events.................................................................. 25
5.2.1 Scheduled partial redemptions – sinking funds and amortizing bonds ............. 25
5.2.2 Funged bonds .................................................................................................... 25
5.2.3 Unscheduled full redemption – exercised calls, puts and buybacks ................. 25
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5.2.4 Bonds trading flat of accrued ............................................................................. 26

5.2.5 Multi-coupon bonds............................................................................................ 26
5.2.6 Ex-dividend conventions .................................................................................... 26
5.3 Price Index.................................................................................................................. 27
5.4 Total Return Index ...................................................................................................... 27
5.5 Gross Price and Income Indices ................................................................................ 28
5.5.1 Gross price indices ............................................................................................ 28
5.5.2 Income indices ................................................................................................... 28
5.5.3 Coupon income indices...................................................................................... 29
5.5.4 Redemption income indices............................................................................... 29
5.6 Calculation of Accrued Interest and Interest Payment Dates..................................... 29
5.6.1 Interest payment dates ...................................................................................... 29
5.6.2 ACT/360 ............................................................................................................. 30
5.6.3 ACT/ACT............................................................................................................ 30
5.6.4 ACT/365 ............................................................................................................. 32
5.6.5 30/360 ................................................................................................................ 33
5.6.6 30E/360.............................................................................................................. 33
5.7 Philippine net of tax calculations ................................................................................ 34
5.8 Bond Analytics ............................................................................................................ 34
5.8.1 Expected remaining life...................................................................................... 34
5.8.2 Redemption yield ............................................................................................... 35
5.8.3 Duration ............................................................................................................. 35
5.8.4 Modified Duration............................................................................................... 35
5.8.5 Convexity ........................................................................................................... 36
5.8.6 Bond returns ...................................................................................................... 36
5.8.7 Market value ...................................................................................................... 37
5.8.8 Base Market value ............................................................................................. 37
5.8.9 Cash payment.................................................................................................... 38
5.9 Index Analytics ........................................................................................................... 38
5.9.1 Average Redemption Yield ................................................................................ 38
5.9.2 Average Duration ............................................................................................... 39
5.9.3 Average Modified Duration ................................................................................ 40
5.9.4 Average Convexity............................................................................................. 40
5.9.5 Average Coupon ................................................................................................ 41
5.9.6 Average Expected Remaining Life .................................................................... 41
5.9.7 Nominal Value.................................................................................................... 42
5.9.8 Market Value...................................................................................................... 42
5.9.9 Base Market Value............................................................................................. 42
5.9.10 Cash Payment ................................................................................................... 42
5.9.11 Index returns ...................................................................................................... 42
5.9.12 Index analytics for the iBoxx ABF Pan Asia Hedged and Unhedged Indices.... 43
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5.10 Annotations ............................................................................................................ 43

5.11 Consolidation parameters ...................................................................................... 47
6 Further information ........................................................................................................... 48
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Changes to the iBoxx ABF index family
Date Changes
1 June 2005 • FX rates used in calculation corrected to 8 am London time from 7 am
GMT
1 Sept 2005 • Updated market weights
1 Sept 2006 • Updated market weights
• Clarification of rules for subordinated debt
• Changed rating procedure
• New maturity indices for all markets and the Pan-Asia index as well as
a separate Philippine net of tax indices
• New local currency, USD hedged and unhedged index analytics (gross
price index, income index, coupon and redemption income indices)
• New bond analytics (market value, notional of bonds in the iBoxx ABF
Pan-Asia indices)
28 January 2007 • Updated market weights
22 June 2007 • New date for annual market weight review
31 October 2007 • Updated market weights
31 October 2008 • Updated market weights
• New Pricing rules for Philippine bonds
• Increase of the minimum outstanding requirement for Philippine
government bonds from PHP 3 bn to 5 bn
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1 Summary
This document describes the selection and calculation rules for the Asian local currency bond
indices developed jointly by International Index Company (IIC) and EMEAP (The Executives’
Meeting of East Asia and Pacific Central Banks). The indices cover Sovereign and quasi-
sovereign bond issues in eight Asian currencies from China, Hong Kong, Indonesia, Korea,
Malaysia, Philippines, Singapore and Thailand.
The index family consists of a domestic index for each market, separate indices for
government and quasi-sovereign issues, and an aggregated overall index denominated in US
Dollars. Maturity indices for the 1-3, 3-5, 5-7, 7-10 and 10+ maturity bands are calculated for
the overall index and each market index. Separate indices using net of tax cash flows are
published for the Philippines.
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2 Bond selection rules and index re-balancing
Bond selection criteria are applied consistently across all eight currencies & markets. The
constituents of the local currency indices are the basis for the Pan-Asia index.
Local bond index selection criteria are described in chapter 2.1. The calculation of market
weights in the iBoxx Pan-Asia index is described in 2.2. A description of the periodic re-
balancing process can be found in 2.3.
2.1 Local bond index selection criteria

The following five criteria are used to determine the index members:
• Bond type
• Rating requirements and issuer classification
• Bond life at issuance
• Time to maturity
• Amount outstanding
The selection of bonds from quasi-sovereign issuers is described in chapter 2.1.6.
2.1.1 Bond type
Only bonds with predetermined cash flows are eligible for the indices.
The following bonds are eligible:

• Fixed, zero coupon and step-up coupon bonds
• Sinking funds and amortizing bonds with a fixed redemption schedule
Bonds with any of the following attributes are excluded from the indices:
• Bonds with embedded call or put options
• Floating rate notes and fixed-to-floater bonds
• Bonds with warrants
• Convertibles
• Undated bonds
• Index-linked and credit-linked notes
Retail bonds are excluded from the indices. Bloomberg, the offering circular, information from
the issuer and other public sources may be used to determine retail bonds. Retail bonds are
identified by the index committee. Where possible the information is verified against one of
the public sources.
In addition, private placements that are only offered to a few select investors are excluded
from the indices. Currently, this affects mainly older Malaysian bonds that were issued
exclusively to government pension funds, as well as a handful of Philippine bonds that may
not be held by more than ten investors at the same time.
2.1.2 Credit rating requirement and issuer classification
Only government, sovereign and sub-sovereign debt subject to the credit rating requirement
as described in 0 below are eligible for the indices.
Market of origin restrictions
With the exception of bonds issued by supranationals, bonds must be issued by an issuer
domiciled in one of the following markets:
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• China, People’s Republic of

• Hong Kong, Special Administrative Region
• Indonesia, Republic of
• Korea, Republic of
• Malaysia
• Philippines, Republic of
• Singapore, Republic of
• Thailand, Kingdom of
Issuer restrictions
Collateralized bonds are excluded from the indices. This applies to both sovereign and quasi-
sovereign issuers.
Government bonds are bonds issued by central governments in their domestic currency.
Quasi-sovereign bonds are split into “sub-sovereign” bonds and “other sovereign” bonds.
Debt issued by one of the 8 EMEAP central governments in one of the 8 EMEAP currencies
other than its domestic currency is classified as “Other Sovereigns” in the quasi-sovereign
index. Bonds issued in currencies other than the 8 EMEAP currencies are not eligible for the
indices.
Sub-sovereign bonds are issued by entities with explicit or implicit government backing due to
legal provision, letters of comfort or the public service nature of their business. The issuer
requires strong central government ownership if its bonds are not explicitly guaranteed by the
central government.
The four main sub-sovereign categories are:

• Agencies
• Government-guaranteed
• Local governments
• Supranationals
Supranational issuers are entities owned and/or supported by more than one central
government.
Examples in the current index universe include:

• Asian Development Bank
• European Investment bank
• International Bank for Reconstruction & Development
Local government bonds issued by local or regional governments are eligible only if they are
explicitly guaranteed by the central government.
Bonds from issuers that are explicitly guaranteed by a central government are classified as
“Government guaranteed” and are eligible for the indices. Guaranteed bonds and issuers are
classified into that category, even though the underlying issuer may be a quasi sovereign.
Agencies are entities whose major business is to fulfil a government-sponsored role to

provide public, non-competitive services. Often, such business scope is defined by a specific
law, or the issuer is explicitly backed by the government. There are three main categories of
agency:
• Financial
• Infrastructure & transport
• Public utilities
In principle, the business scope and legal provisions in combination with strong government
ownership determine whether an issuer is a quasi-sovereign or a corporate. In addition, the
rating differential between government and quasi-sovereign is also taken into consideration.
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For instance, a considerable rating differential (e.g. three notches) below the sovereign
suggests that the issuer does not belong in the quasi-sovereign sector.
Different categories of Agencies
Financial agencies provide support for a specific segment of the financial market, financial
assistance to a specific group of customers or general development financing. Companies
managing strategic central government investments in select industries also qualify. Financial
agencies need to be clearly linked to the central government. Local government sponsored
agencies are not eligible.
(i) Development banks are entities providing

(a) General financing for development projects, e.g.:
• China Development Bank

• Korea Development Bank
• Bank Pembangunan & Infrastruktur
or (b) financial access/support for specific customer segments such as agriculture

or small business, e.g.:
• Korea Agricultural Finance
• Small Business Corp
• Small and Medium Enterprise Development Bank of Thailand
(ii) Export-import banks are entities created to support foreign trade, e.g.:
• Export-Import Bank of China
• Export-Import Bank of Korea
(iii) Entities supporting the stability or development of the housing market by supporting
the private housing and/or mortgage market of a country, e.g.:
• Cagamas
• Hong Kong Mortgage Corp.
• Housing Development Board of Singapore
• Korea National Housing Corp.
• National Housing Authority of Thailand
(iv) Agencies set-up to restructure or to stabilise the banking or insurance industry, such
as:
• Korea Deposit Insurance Co.
• Pengurusan Danaharta Nasional Bhd.
(v) Strategic investment holding companies, whose main business is the management of
central government investments in strategic industries, are eligible. Local government
sponsored investment holdings do not qualify, due to uncertainty about their financial support.
In addition, the link between the central government and the investment holding must be
firmly established through ownership AND business scope. Strategic investment holdings that
currently qualify for the indices include:
• Khazanah Nasional Bhd.
• Temasek (however, Temasek has not yet issued eligible debt)
Infrastructure & transport agencies are entities that manage vital public infrastructure projects.
(i) Airport authorities and airports, such as:

• Hong Kong Airport Authority
• Kuala Lumpur International Airport
(ii) Industrial parks or rural infrastructure developments, incl.:

• KARICO
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(iii) Railroads and/or public transport services, such as:

• Mass Transit Corp.
• Korea Rail Network Authority
• Syarikat Prasarana Negara Bhd.
• Mass Rapid Transit Authority
(iv) Road infrastructure, e.g.:

• Korea Highway Corp.
Commercial providers of transportation services, such as airlines or private transportation

businesses, are not eligible, even if they are majority government-owned. Privately owned
and operated infrastructure projects are also not eligible.
Public utilities are the final major group of agencies. Public utilities provide basic
infrastructure, such as electricity, gas or water. However, a significant amount of competition
is already apparent in the utilities sector. Therefore, public utilities need to be majority
government-owned and strategic utilities, rather than small players. Sectors such as
telecommunication, that are already highly commercialised, are excluded from the indices.
National government-owned oil companies are considered as quasi-sovereign within public
utilities. Currently, two companies have issued debt:
• Petronas
• PTT
The main utilities are:

(i) Electricity, e.g.:
• China State Grid
• KEPCO
• Singapore Power
• EGAT
(ii) Gas and (iii) water, e.g.:

• Korea Gas
• Metropolitan Waterworks Authority
(iv) Oil:
• Petronas
• PTT
Treatment of subordinated debt from quasi-sovereign issuers
The qualification requirements for subordinated debt are stricter than for senior debt.
Subordinated debt from quasi-sovereigns is only eligible for the indices if it is explicitly
guaranteed, or if the government guarantee for the issuer includes subordinated debt. All
other subordinated debt issued by quasi-sovereign issuers is viewed as corporate debt and is
excluded from the indices.
Rating requirements
Domestic central government debt does not require a rating. In order to ensure high credit
quality of the index, most quasi-sovereign bonds need to be rated investment grade. Ratings
from the following three credit rating agencies are considered:
• Fitch
• Moody’s
• Standard & Poor’s
If a bond is rated by more than one agency, the average rating of all ratings is used. The
average rating is calculated as the arithmetical average of all ratings, whereby each rating is
converted into a numerical number. All rating notches have the same numerical distance, e.g.
from A1 to A2 has the same distance as Aaa to Aa1.
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Prior to 30 September 2006, the lowest rating was used. Investment grade is defined as BBB-
or higher from Fitch and Standard & Poor’s and Baa3 or higher from Moody’s.
During the transition period from 30 September 2006 to 30 June 2007, the lowest rating is still
used to determine whether a bond is investment grade rated. Within investment grade, the
average rating determines the index rating of the bond.
Supranationals need to have at least AA- rating.
Unrated bonds or issuers from investment grade markets are only eligible in following quasi-
sovereign categories:
• Government-guaranteed, and
• Financial agencies, provided it can be ascertained that the issuer has strong links to
and support from the central government (e.g. a reduced risk weighting for the
purpose of calculating capital adequacy ratio for commercial banks, senior
government representation on the company board etc.). The decision whether to
include unrated financial agencies is taken on a case-by-case basis.
Quasi sovereigns from sub-investment grade rated markets are excluded from the indices,
unless they have an investment grade rating. The applicable sovereign debt rating is the best
rating of the Fitch, Moody’s and S&P local currency debt ratings.
Classification review procedure
The issuer classification is reviewed regularly and status changes are included in the indices
at the next re-balancing. Additional information documenting the classification decision is
provided for unrated quasi-sovereigns or where the rating differential between the sovereign
and the issuer is significant.
The approach described in section 2.1.2 forms the basis for the inclusion rules. In exceptional
circumstances, the iBoxx Asian index committee may propose the inclusion of additional
issuers that fall outside these basic rules. The classification decision and the supporting
documentation are submitted to the iBoxx Asian Oversight Committee for review and
approval.
2.1.3 Bond life at issuance
All bonds must have a minimum bond life of 18 months at issuance. The minimum life is
measured from the first settlement date to the maturity date of the bonds and is rounded to
the nearest month.
2.1.4 Time to maturity
All bonds must have a remaining time to maturity of one year at any re-balancing date. The
time to maturity is calculated from the re-balancing date to the final maturity date of the bond
by using the native day count convention of the bond.
For sinking funds and amortizing bonds, the average life is used instead of the final maturity
to calculate the remaining time to maturity.
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2.1.5 Amount outstanding
The cut-off level for amount outstanding is currency specific. Different amounts may apply for
sovereign and quasi-sovereign debt.
The following table shows the minimum amount outstanding for bonds in each market:
Market Currency Sovereigns Quasi sovereigns

China CNY 20,000,000,000 10,000,000,000
Hong Kong HKD 500,000,000 500,000,000
Indonesia IDR 2,000,000,000,000 1,000,000,000,000
Korea KRW 1,000,000,000,000 100,000,000,000
Malaysia MYR 2,000,000,000 500,000,000
Philippines PHP 5,000,000,000 3,000,000,000
Singapore SGD 500,000,000 200,000,000
Thailand THB 20,000,000,000 2,000,000,000
Amount outstanding cut-off levels for sovereigns and quasi-sovereigns are generally different,
in order to reflect differences in the average issue size. However, in markets where the
sovereign cut-off level is already low, the quasi-sovereign cut-off has not been lowered
further, to ensure that all eligible bonds have a certain minimum USD-size.
2.1.6 Limit on the number of issues per quasi sovereign issuer
There are no restrictions on the number of issues for sovereign debt.
In order to increase the investability of the index and to maintain a high degree of issuer
diversification, the number of issues for each quasi-sovereign issuer (as identified by the
Bloomberg ticker) is limited to reduce the number of bonds in the index. The number of bonds
per issuer is limited to five. If more than five issues qualify for inclusion in the indices, a
liquidity ranking is used to decide which bonds have greater liquidity. The liquidity ranking is
based on three factors:
• Size (amount outstanding)
• Age (time since issuance)
• Time to maturity
A z-score is used to determine the relative liquidity of a bond versus other bonds from the
same issuer.For each bond per issuer and each factor, a z-score calculated. The z-score is
defined as:
x − µ ( x)
1. z i ( x) = i
σ ( x)
where:
zi(x) ................................. z-score of bond i regarding value x

xi...................................... Value x of bond i
µ(x).................................. Average size of x for all bonds from the same issuer
σ(x) ................................. Standard deviation of x for all bonds from the same issuer
For example, the z-score for the amount outstanding of the bond is:
∑ (AO )
2
n j
AOi − µ ( AO) 1
∑ AO j − [µ ( AO)]
j =1 2
2. z i ( AO) = ; µ ( AO) = ; σ ( AO) =
σ ( AO) n j =1 n
where:
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zi(AO) .............................. Amount outstanding z-score of bond i

µ(AO) .............................. Average issue size of eligible bonds from the same issuer as bond i
σ(AO) .............................. Standard deviation of issues size of all eligible bond from the same
issuer as bond i
n ...................................... Number of bonds from the same issuer as bond i
The same calculation is performed for the time to maturity and the age of the bond. Time to
maturity and age of the bond are calculated as described in chapters 2.1.3 and 2.1.4.
The combined z-score attaches a weight of:

• 0.5 to the amount outstanding
• –0.3 to the age (as younger is more liquid)
• 0.2 to the time to maturity of individual bonds.
The consolidated ranking factor for a bond is determined by adding and weighting the three z-
scores:
3. z i* = 0.5 • z i ( AO ) + 0.2 • z i (TTM ) − 0.3 • z i ( Age)

where:
zi(Age)............................. Age z-score of bond i

zi(AO) .............................. Amount outstanding z-score of bond i
zi(TTM)............................ Time-to-maturity z-score of bond i
*
zi ..................................... Ranking factor of bond i
The top five bonds by combined z-scores are included in the indices.
2.2 Market weights
2.2.1 Background
The iBoxx ABF indices cover a variety of markets with small, medium and large bond
markets. Simply weighting by market capitalization would skew the index profile heavily in
favour of the two biggest markets – China and Korea - and reduce the weight of smaller debt
markets (e.g. Hong Kong or Singapore), which are more developed, more liquid and
accessible for investment. Therefore the standard index construction approach is unsuitable
for Pan-Asia debt and would prevent investors from obtaining a sizeable exposure to the
underlying bond markets.
2.2.2 Market weight composition
The weight of each market is constructed from equal weighting baseline (i.e. 12.5% weight for
each of the eight markets in the Pan-Asia index). The baseline weight is adjusted by the
following factors:
• Local bond market size (S)

• Turnover ratio (T)
• Sovereign local debt rating (R)
• Market functionality (F)
The individual factors are described below.
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2.2.3 Adjustment factors
Local bond market size
Local bond market size is defined as the size of the local bond market in USD. Where
available, figures published by the Asian Development Bank on asianbondsonline.adb.org are
used, otherwise the iBoxx Asian technical committee is polled and the consolidated average
used.
Turnover ratio
Turnover ratio is a proxy for market liquidity derived from comparing the total transaction size
to the market capitalization. The turnover is the consolidated annualized average polled from
the iBoxx Asian technical committee. The bond market size is described above.
Sovereign local debt rating
The best (highest) local currency long-term debt rating from Fitch, Moody’s and S&P is used
for each country. The ratings are converted into rating scores as follows:
AAA/Aaa 8
AA+/Aa1 7
AA/Aa2 6
AA-/Aa3 5
A+/A1 4
A/A2 3
A-/A3 2
BBB+/Baa1 1
BBB/Baa2 and below 0
Market functionality
The final market weight factor is a qualitative factor that gauges the relative efficiency of the
eight markets. Each market has a score between 0 and 100; each score is rounded to the
nearest five. The scores are polled from the iBoxx Asian technical committee.
Calculation of the adjustment
Each factor is normalized using the following method:

f i, j 1
4. Fi , j = n
−
n
∑f
m =1
m, j
where: fi,j ...................................... Original value of factor j in market i

Fi,j ..................................... Normalized value of factor j in market i
n ....................................... Number of markets
2.2.4 Combined adjustment factor
Each market’s adjustment factor (AF) is the weighted sum of the five factors above:
5. AFi = 0.2 ⋅ S i + 0.2 ⋅ Ti + 0.2 ⋅ Ri + 0.4 ⋅ Fi
where: AFi.................... Adjustment factor of market i
Fi ...................... Normalized value of market functionality of market i
Ri ...................... Normalized value of sovereign rating of market i
Si ...................... Normalized value of bond market size of market i
Ti ...................... Normalized value of turnover ratio of market i
Each market’s weight is the sum of the baseline weight and the adjustment factor:
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1
6. Wi = + AFi
8
where: AFi.................... Adjustment factor of market i
W i ..................... Weight of market i in the iBoxx ABF Pan-Asia index
The market weights are rounded to the fourth decimal. The maximum permissible market
weight is capped at 30%. If a market has a theoretical weight in excess of 30%, the
residual weight is distributed amongst the remaining markets in proportion to their
respective weights.
2.2.5 Review of individual market weights
The review process distinguishes between regular and extraordinary reviews. In order to
enhance the stability of the indices and to capture long-term trends within the eight
markets, the market weights are reviewed annually at the 31 October re-balancing. The
market weights are not changed between review dates unless an extraordinary review is
conducted.
The iBoxx Asian Index committee or Markit may decide to undertake an extraordinary
review of market weights at any monthly re-balancing, if profound changes in one or more
of the eight markets suggest that the weights of the markets would change significantly
during the review. Examples of such events are a major increase in bond issuance or
liquidity, or major regulatory changes that impact the market functionality significantly.
2.2.6 Current weights
st
The current weights effective from 31 October 2008 are:
China 17.77%
Hong Kong 19.14%
Indonesia 5.64%
South Korea 16.39%
Malaysia 10.59%
Philippines 5.24%
Singapore 14.92%
Thailand 10.31%
2.2.7 Historical weights

st
Prior to 1 November 2007, the following weights were applied:
Country 31-Dec- 30-Sept- 30-Sept- 31-Jan- 31-Oct-
region 2000 2005 2006 2007 2007
China 11.28 % 11.24 % 12.26% 12.31% 14.89 %
Hong Kong 17.05 % 18.30 % 18.36% 18.56% 20.20 %
Indonesia 6.14 % 5.99 % 5.94% 6.06% 6.43 %
South 21.26 % 20.67 % 20.84% 20.96% 17.05 %
Korea
Malaysia 10.76 % 10.70 % 10.22% 10.37% 10.81 %
Philippines 5.19 % 4.96 % 5.14% 5.26% 4.78 %
Singapore 18.70 % 18.22 % 17.73% 17.92% 15.64 %
Thailand 9.62 % 9.92 % 9.52% 8.56% 10.20 %
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2.3 Index re-balancing procedure

All iBoxx ABF indices are re-balanced monthly on the last calendar day of the month after the
close of business. Changes to static data, such as ratings, amounts outstanding etc. are only
taken into account if they are publicly known three business days before the end of the
month. Changes in rating or amount outstanding on the last two trading days of the month are
accounted for at the next re-balancing. New bonds issued must settle before the end of the
month and all relevant information must be known at least three trading days before the end
of the month.
The classification of existing bonds is also reviewed at each monthly re-balancing, and
resulting classification changes are implemented at the re-balancing. This means that quasi-
sovereign issuers, which are no longer considered to have a sufficiently close relationship
with the government, are reclassified as corporate issuers and subsequently removed from
the index at the monthly re-balancing. The final membership list for the next month is
published two trading days before the end of the month, and is republished with the re-
balancing prices on the last trading day of the month after close of business.
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3 End-of-day price consolidation procedure
3.1 Price contribution

The iBoxx ABF indices are multiple contributor indices. The prices are taken from multiple
sources, quality controlled and averaged. The resulting consolidated price is used in the index
calculation.
Bid and ask price quotes for bonds in the eligible universe are provided by the contributing
price providers on an end-of-day basis. Quotes are sent for all trading days in the respective
local currency bond market. Currently, the following providers submit prices:
• Agriculture Bank of China
• AM Bank
• Bank Negara Malaysia
• Bank of China
• Bank of Communications
• Barclays Capital
• China Nation-Interbank Funding Centre
• DBS
• Deutsche Bank
• Hong Kong Monetary Authority
• HSBC
• Indonesia Inter-Dealer Market Association (IDMA)
• Industrial and Commercial Bank of China
• KIS Pricing Inc.
• Korea Bond Pricing
• Monetary Authority of Singapore
• Money Market Association of the Philippines (MART)
• Shanghai Stock Exchange
• Standard Chartered
• Thai Bond Market Association
• UBS
For the Indonesian indices, prices from IDMA are used as the single price source, and for the
Philippines PDEX data are used exclusively, because IDMA and PDEX prices are already
compiled from multiple contributors. The standard iBoxx consolidated prices are used as a
backup if IDMA or PDEX prices are not available or corrupted.
3.2 Automated pre-consolidation price quality control processes

Each quote received passes through a two-step filter process before inclusion in the
consolidation process. First, each quote passes through a plausibility check (stand-alone
check) followed by a comparison of the quotes from the different price providers (comparative
check).
3.2.1 Stand-Alone Check (First Filter)
The stand-alone check verifies the following criteria:

• Data successfully transmitted, and in a valid format
• Bid quote has been received.
• Bid quote is non-negative and does not exceed a permitted maximum bid
• Ask quote was not submitted (“NA”) or is non-negative and does not exceed a
permitted maximum ask
• Date is correct
• Timestamp is within the permitted window.
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• If bid and ask are provided: bid-ask spread is positive and not greater than permitted
maximum.
The stand-alone check is performed using three quality levels, a (1) “standard level”, (2)
“warning level” and (3) “maximum level”:
Any quote which does not validate against one or more of the maximum level criteria is
rejected and is not included in the price consolidation process. If bid and ask have been
provided, then both bid and ask quotes are rejected if one of them fails the validation process.
3.2.2 Comparative check (Standard level vs. warning level vs. maximum permitted
level)
Similar to the stand-alone check, there are several severity levels (standard level, warning
level and maximum permitted level) for each threshold defined in 5.11 (i.e for the bid (ask)
‘standard maximum distance’, the ‘standard inner distance’, ‘standard outer distance’,
‘warning maximum distance’ etc.)
Initially, the comparative check is performed separately for the bid and ask quotes, i.e. if a bid
quote fails the comparative checks, but the corresponding ask quote passes, then only the bid
quote will be excluded from the ensuing consolidation and vice versa.
st
The comparative checks described below are performed at each level (1 for the standard,
nd
2 for the warning and finally for the maximum level) until at least two quotes have passed
the check. The process is described in the diagram below:
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Comparative checks - Example
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Description of the comparative checks (bid quotes):
1. For each ISIN bids are ordered from lowest (minimum) to highest (maximum) bid. The
comparative checks are performed if at least two quotes are available.
2. The difference between the maximum and the minimum is compared to the standard
maximum distance. If the difference is lower than or equal to the standard maximum distance,
all bids are considered to have passed the test and will be passed on to the price
consolidation and no further comparative checks are performed. Else if at least three quotes
are available, the standard outer/inner distance check is performed. Otherwise, the warning
maximum distance check is performed.
3. The difference between maximum bid and the next bid is compared to the standard
outer distance. If the difference is greater than the standard outer distance, then the
maximum bid is rejected. The same check is performed for the minimum bid. If there are two
bids with the same value then the difference between is 0. E.g. if the two highest bids are 101
and 101, then the outer distance (for the maximum bid) is 0.
Thereafter, all differences between two consecutive bids are compared to the standard inner
distance. All quotes are rejected if any difference is greater than the standard inner distance.
If at least two quotes remain eligible, they are passed on to the price consolidation and no
further comparative checks are carried out. Else the next comparative check is performed.
4. The difference between the maximum and the minimum is compared to the warning
maximum distance. If the difference is lower than or equal to the warning maximum distance,
all bids are considered to have passed the test and are passed on to the price consolidation,
and no further comparative checks are performed. Else if at least three quotes are available,
the warning outer/inner distance check is performed. Otherwise, the maximum permitted
maximum distance check is performed.
5. The difference between maximum bid and the next bid is compared to the warning
outer distance. If the difference is larger than the warning outer distance, then the maximum
bid will be rejected. The same check is performed for the minimum bid.
Thereafter, all differences between two consecutive bids are compared to the warning inner
distance. All quotes are rejected if any difference is greater than the warning inner distance.
If at least two quotes remain eligible, they are passed on to the price consolidation and no
further comparative checks are carried out. Else the next comparative check is performed.
6. The difference between the maximum and the minimum is compared to the maximum
permitted maximum distance. If the difference is lower than or equal to the maximum
permitted maximum distance, all bids are considered to have passed the test and are passed
on to the price consolidation and no further comparative checks are performed. However, the
bonds are listed in an exception report. Else if at least three quotes are available, the
maximum permitted outer/inner distance check is performed. Otherwise, all quotes are
rejected and included in an exception report.
7. The difference between maximum bid and the next bid is compared to the maximum
permitted outer distance. If the difference is greater than the maximum permitted outer
distance, then the maximum bid will be rejected. The same check is performed for the
minimum bid.
Thereafter, all differences between two consecutive bids are compared to the maximum
permitted inner distance. All quotes are rejected if any difference is bigger than the maximum
permitted outer distance.
If at least two quotes remain eligible, they are passed on to the price consolidation. The
bonds are included in an exception report.
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3.3 iBoxx Consolidation Algorithm

Consolidation can only be take place if at least two quotes have passed the comparative
checks.
The consolidation is performed separately for bid and ask quotes. If two or three quotes are
available, the consolidated price is the simple (arithmetical) average of the quotes.
If four or more quotes are available, then the maximum and minimum quote is excluded, and
the consolidated price is the arithmetical mean of the remaining quotes. If there are two or
more identical quotes corresponding to the minimum (or maximum) value, then only one of
the minimum (or maximum) values is excluded from the consolidation.
3.4 Publication of iBoxx prices

If a consolidation was successful for both bid and ask price, then both prices are published. If
only the bid price was consolidated, then the bid price is published but no ask price is
published. If only the ask price was consolidated, then the bid and ask from the previous
trading day are published. If neither bid nor ask were consolidated, then bid and ask from the
previous trading day are published.
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4 Data for iBoxx ABF Index Calculation
4.1 Static Data

Information used in the index calculation is sourced from standard providers and is routinely
checked against a second independent source.
4.2 FX rates
FX spot and forward rates are sourced from WM Company. The daily index calculation uses
the FX rates from 8 am London time.
4.3 Bond and Index Data

An index is calculated if at least one bond matches all inclusion criteria. If no more bonds
qualify for an index, then its level will remain constant. If at least one bond becomes available
again, the index calculation will be resumed at the last calculated level.
Calculation occurs on a daily basis as soon as the consolidated quotes become available.
The indices are calculated on each trading day (Monday to Friday), unless this day is a
holiday in each of the eight countries. The indices are also calculated on the last calendar day
of each month. If the indices are calculated on a day that is a non-business day in one of the
countries, then the consolidated prices from the previous trading day will be carried forward
and the index will be calculated using those prices and the current accrued interest and
coupon payment data.
The calculation of the indices is based on bid quotes. New bonds are included in the indices
at their respective ask prices when they enter the index family. In the event that no
consolidated price can be established for a particular bond, the index continues to be
calculated based on the last available consolidated prices.
On the last trading day of a month, the re-balancing takes place after the daily index
calculation for the current month’s list - including the calculation of the last calendar day’s
indices - has been performed. On the last trading day of the month price contributors submit
bid and ask quotes for all new bonds, which are to be included in the indices for the new
month.
4.4 Index history

The index history starts on 31/12/2000. All indices have the value of 100 on 31/12/2004.
4.5 Settlement Conventions

All iBoxx indices are calculated using t+0.
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5 Index Formula
5.1 Index and analytics weightings

The iBoxx ABF indices are volume-weighted indices, with a bond’s amount outstanding as the
weighting factor. The amount outstanding of a bond is only adjusted within the monthly re-
balancing process at the end of each month. However, scheduled redemption payments for
amortising bonds and sinking funds are taken into account when they occur, as they are
influential for the index return and analytical values. In addition, bonds that are fully redeemed
intra-month are also taken into account immediately. Therefore the indices are based on
adjusted amount outstanding derived from the amount issued and closely related to the
amount outstanding of a bond. The concept is summarised below:
Definitions:
• Amortising bonds: Bonds, where the face value is redeemed according to a schedule
at more than one redemption date. Interest payments are made on the basis of the
remaining value of the bond.
• Sinking funds: Bonds, where money is applied periodically to redeem part of the
outstanding before maturity. At the redemption dates, the appropriate amount of
bonds may either be retired randomly from the outstanding bonds, or (sometimes)
may be purchased on the open market and thus retired. Interest payments are made
on the remaining outstanding bonds.
• Fully redeemed bonds: Bonds who are fully called or have been completely
repurchased prior or at the calculation date.
• The amount issued of a bond does not change when coupons are paid and bonds are
redeemed. However, additional tranches and unscheduled repurchases are taken
into account to arrive at a suitable basis for the index and the analytics calculation.
Therefore the adjusted amount outstanding is the common basis on which all
calculations are based.
• In addition, the bond prices from price contributors are linked to the amount
outstanding rather than to the amount issued. This ensures a common basis (to the
nominal value of 100) on which all bonds are priced and the indices are calculated.
5.1.1 Adjusted amount outstanding
The market capitalisation of a bond is always equal to the dirty price multiplied by the
amount outstanding (for the definition of the symbols used in this section, see chapter
5.7.). Assuming no additional tranches and no unscheduled purchases, the following
relationship exists between the amount issued and the amount outstanding of a bond:
 100 − ∑ Ri 
 i ≤t

7. AOt =   ∗ AI t
 100 
 
The difference between the amount outstanding and the amount issued is caused by
scheduled redemptions of amortising bonds and sinking funds. Therefore, we can define for
each bond i the factor Fi,t that represents the remaining principal (expressed as percentage)
at time t (1 minus the sum of redemptions up to the settlement date):
 100 − ∑ Ri , j 
 j ≤t

8. Fi ,t =  
 100 
 
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The factor equals 1 for all bullet bonds where the face value is redeemed at maturity. The
percentage redeemed from the sinking or amortising schedule is based on the amount
issued. However, since part of the issue could have been repurchased or additional tranches
issued after the bond has started to amortise these changes need to be reflected in the
amount issued used in the index calculation and the other formulae.
If the bond has already started amortising, the percentage retired from the existing issue
cannot be changed. Therefore, such tranches will retire a higher percentage of their amount
issued compared to the existing issues. However, once these bonds have funged, they form a
unit. Since the redemption percentages in the sinking schedule must add up to 100, this issue
has to be dealt with by adjusting the amount issued.
The general formula for incorporating tranches into the adjusted amount issued for bond j is:
9. AI (j incl
,t
.tranches )
= ∑ AI j ,i ( (Tranches )
÷ F j ,i )
i ≤t
For bonds without amortising or sinking schedules, the divisor is 1 and the amount issued is
equal to the sum of its tranches. Hence, the standard case is also incorporated in the formula.
Equally, unscheduled repurchases have to be taken into account for the adjusted amount
outstanding:
10. AI j ,t = ∑ (AI
i ≤t
j ,i
(Tranches )
) ∑ (AO
÷ F j ,i −
i ≤t
(Unplanned Re purch )
j ,i ÷ F j ,i )
Unscheduled repurchases for normal bonds are fully deducted from the adjusted amount
issued. Hence, the adjusted amount outstanding is equal to the amount outstanding for all
normal bonds.
Summarizing 9 and 10 the adjusted amount outstanding at the current date t can be
calculated as:
11. N j ,t = AI j ,t = ∑ (∆
i ≤t
j ,i )
÷ F j ,i , ∆j,i is the change in amount outstanding of bond j at time i.
The adjusted amount outstanding is equal to the amount outstanding, except for bonds
with a sinking or amortising schedule. This formula is valid under the assumption that
funging tranches do not alter the sinking schedule.
The adjusted amount outstanding N is used as weighting factor in the index formulae and
all index averages, while F is used to account for the different redemption events.
5.1.2 The redemption factor F
There are three different redemption events for a bond:

• Scheduled partial redemption: Partial redemptions according to a predefined
redemption schedule. The percentage redeemed at date t is deducted immediately
from the redemption factor F:
Fi ,t = Fi ,t −1 − Ri ,t
• or, the percentage redeemed is: Ri ,t = Fi ,t −1 − Fi ,t
• Partial calls or buybacks: Partial redemptions not according to a predefined
redemption schedule. These events are completely ignored in the redemption
factor: Fi ,t = Fi ,t −1
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• Full calls or buybacks: The whole remaining outstanding of a bond is redeemed at the
call or buyback date. On the call/buyback date, the redemption factor is set to
0: Fi ,t = 0
• or the percentage redeemed is: Ri ,t = Fi ,t
5.2 Treatment of special (intra-month) events

5.2.1 Scheduled partial redemptions – sinking funds and amortizing bonds
- Price and accrued interest:

Are quoted and calculated to the actual amount outstanding (par) scheduled redemptions
within the period are taken into account immediately
- Coupon payments:
Refer to the scheduled amount outstanding over the last coupon period scheduled
redemptions within the month are not taken into account
- Repayment of principal:
The sinking schedule refers to the (adjusted) amt. outstanding scheduled redemptions are
not taken into account
5.2.2 Funged bonds
Some bonds are issued in several tranches. The different tranches may be legally separate
and therefore trade independently for a certain period. At and after the funge date, the funged
tranches will be combined into one bond, i.e. the parent tranche will contain the original
security, as well as the notional(s) from the new tranche(s). After the funge date, the price for
both the securities should be the same, because they constitute one uniform bond. This is
reflected in the indices as follows:
(a) Parent and new tranche are index constituents

• After the funge date, the price from the parent tranche is used for the funged tranche;
no price consolidation for the funged bond
• Funged tranche leaves the index at the next re-balancing and parent amount
outstanding increases accordingly.
(b) Parent is index constituent but new tranche is not

• No special intra-month treatment necessary
• Parent amount outstanding increases at the next re-balancing
(c) Parent is not index constituent but new tranche is

• No special intra-month treatment necessary
• Funged tranche leaves the index; parent tranches enters the index at the next re-
balancing
5.2.3 Unscheduled full redemption – exercised calls, puts and buybacks
If a bond is fully redeemed intra-month, the bond ceases to exist. In all calculations, the
redeemed bond is treated as cash. The redemption factor Fi,t, Redemption Ri,t and the
Redemption Price RPi,t are used to treat these events in the index and analytics calculation. In
addition, the clean price of the bond is set to the redemption price, and the accrued interest
until the redemption date is treated as in irregular coupon payment so that the accrued
interest shown is set to 0 and the coupon payment contains the amounts paid in excess of the
clean redemption price.
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5.2.4 Bonds trading flat of accrued
If a bond is identified as trading flat of accrued, the accrued interest of the bonds is set to 0 in
the total return index calculation and the bond is excluded from the calculation of all bond and
index analytical values.
The index committee is responsible for identifying bonds trading flat of accrued.
5.2.5 Multi-coupon bonds
Some bonds have pre-defined coupon changes that lead to a change in the annual coupon
over the life of the bond. In all instances, the coupon change must be a fixed amount on top of
a fixed coupon, i.e. floating coupon bonds are not eligible for the indices. The two main
categories of bonds are step-up bonds and event-driven bonds.
Step-up bonds. These are bonds with a predefined coupon schedule that cannot change
during the life of the bond. The coupon schedule is used in all bond calculations.
Event-driven bonds. These are bonds whose coupon may change upon occurrence (or non-
occurrence) of pre-specified events, such as rating changes (rating-driven bonds), failure to
register a bond (register-driven bonds), or failure to complete a merger (merger-driven
bonds). In the calculation of the indices and the analytics, the coupon schedule as of the
calculation date is used. That is to say, any events occurring after the calculation date are
ignored in the determination of the applicable coupon schedule.
Example: A bond rating changes on 31 December 2003 from A- to BBB+, and the coupon
steps from 6% to 6.25% from 01 March 2004 onwards. The coupon dates are 01 October and
01 April each year. The correct coupon schedule for the bond and index calculations is now
date dependent. The index calculation on 20 December 2003 uses the 6% coupon for the
whole life of the bond, while the calculation on 31 January 2004 uses a 6% coupon for the
current coupon period to 29 February 2004, and a 6.25% coupon for all later interest
payments. The index calculation on 20 March uses a 6% coupon until 29 February, a 6.25 %
coupon for the remainder of the current coupon period and a 6.25 % coupon for all future
coupon payments. The index calculation after 01 April uses a 6.25% coupon.
5.2.6 Ex-dividend conventions
Some markets have ex-dividend conventions. Ex-dividend means that the next coupon is
detached from the bond several days in advance of the coupon payment date. The date on
which the next coupon is detached is the ex-dividend date and the period between the ex-
dividend date and the coupon payment date is the ex-dividend period. If a bond is in the ex-
dividend period, the next coupon payment will not be paid to a buyer of this bond, but will be
paid to the original holder.
The indices and analytics calculations take ex-dividend conventions into account. During the
ex-dividend period, the accrued interest of the bond is negative, while the next coupon
payment is held separate in the variable coupon adjustment CPi,t. If the bond enters the index
during the ex-dividend period, then the next coupon payment (and the coupon adjustment)
will not accrue to the index, however, if the bond was already in the index, the next coupon
payment needs to be included in the total return calculations. This is controlled via the ex-
dividend indicator XDi,t which is 0 if the bond enters the index during the current ex-dividend
period and 1 if not. The same treatment is also applied to all analytics calculation, i.e. the first
cash flow is excluded from the calculations if the bond enters during the current ex-dividend
period.
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5.3 Price Index
All iBoxx ABF indices are basket indices that express relative changes in value compared to
the beginning of the respective period. The composition and weightings of the index are
adjusted at the beginning of each period. Accordingly, corresponding adjustments to index-
tracking portfolios are only required at the end of each period.
The clean price index is calculated as:
∑P i
i ,t Fi ,t − s N i ,t − s
12. PI t = PI t − s
∑P i
i ,t − s Fi ,t − s N i ,t − s
The indices are based on consolidated bid quotes. Bonds currently not part of the iBoxx ABF
universe will enter the indices at the next re-balancing and are included in the index
calculation at the beginning of the next period using the closing ask prices from the last
trading day of the previous period.
Unhedged clean price index
Currency Currency PI t FX tCur / USD

13. PIU t = PIU t −s ⋅ ⋅ / USD
PI t − s FX tCur
−s
Hedged clean price index
 PI t FX tCur / USD FX tCur / USD

− FX tCur / USD 
14. PIH Currency
= PIH Currency
⋅  ⋅ +
− s ,t

t t −s  PI Cur / USD
FX tCur / USD 
 t − s FX t − s −s 
5.4 Total Return Index

Local currency total return index
15.
n  
∑  (Pi,t + Ai,t )Fi,t + ∑ XDi, j −1 ⋅ (CPi, j + Gi, j ) ⋅ Fi, j −1 ⋅ FAt ,i, j + ∑ Ri, j ⋅ RPi, j ⋅ FAt ,i, j  ⋅ N i,t −s
i =1  t − s < j ≤t t − s < j ≤t 
TRt = TRt − s n
∑ ( Pi,t −s + Ai,t −s + XDi,t −s ⋅ CPi,t −s ) ⋅ Fi,t −s N i,t −s
i =1
The different redemption factors (Fi,t, Fi,t-s) are used for sinking funds and amortizing bonds
and unscheduled full redemptions. The treatment is explained in 5.1.2. For other bond types,
F always equals 1.
In addition, hedged and unhedged indices in USD are calculated.
Unhedged total return index
TRt FX tCur / USD

16. TRU tCurrency = TRU tCurrency
−s ⋅ ⋅ / USD
TR t − s FX tCur
−s
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Hedged total return index
 TRt FX tCur / USD FX tCur / USD

− FX tCur / USD 
⋅ 
Currency Currency − s ,t
17. TRH = TRH ⋅ +
t t −s  TR Cur / USD
FX tCur / USD 
 t − s FX t − s −s 
5.5 Gross Price and Income Indices

Each total return index is split into a gross price, an income, a coupon income and a
redemption income index. These indices are also provided for the USD hedged and
unhedged total return indices including the iBoxx ABF Pan-Asia index.
5.5.1 Gross price indices
Local currency gross price index
18.
n
∑ ((P
i =1
i ,t + Ai ,t ) ⋅ Fi ,t + XDi ,t − s ⋅ CPi ,t ⋅ Fi ,t − s ) ⋅ N i ,t − s
GI t = GI t −s n
∑ (P
i =1
i ,t − s + Ai ,t − s + XDi ,t − s ⋅ CPi ,t − s ) ⋅ Fi ,t − s ⋅ N i ,t − s
Unhedged gross price index
19.
GI t FX t
GI tU = GI tU− s ⋅ ⋅
GI t − s FX t − s
Hedged gross price index
The hedge effect is completely reflected in the gross price index:
 GI t FX t FX t − s ,t − FX t 
20. GI tH = GI tH− s ⋅  ⋅ + 
 GI t − s FX t − s FX t − s 
5.5.2 Income indices
Local currency income index
21.
n
∑ ((XD
i =1
i ,t − s ⋅ Gi ,t ⋅ Fi ,t − s + PRi ,t − s ,t ⋅ ( Fi ,t − s − Fi ,t )) ⋅ N i ,t − s )
IN t = IN t − s + GI t − s n
∑ (P
i =1
Unhedged/hedged income index
22.
IN t − IN t − s FX t
IN tH / U = IN tH− s/ U + GI tH− s/ U ⋅ ⋅
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5.5.3 Coupon income indices
Local currency coupon income index
23.
Unhedged/hedged coupon income index
24.
IC t − IC t − s FX t
IC tH / U = ICtH− s/ U + GI tH− s/ U ⋅ ⋅
5.5.4 Redemption income indices
Local currency redemption income index
25.
n
∑ (PR
i =1
i , t − s ,t ⋅ (Fi ,t − s − Fi ,t ) ⋅ N i ,t − s )
IRt = IN t − s + GI t − s n
∑ (P
i =1
Unhedged/hedged redemption income index
26.
IRt − IRt − s FX t
IRtH / U = IRtH− s/ U + GI tH− s/ U ⋅ ⋅
5.6 Calculation of Accrued Interest and Interest Payment Dates

The calculation uses the native accrued interest and cash flow conventions of the bonds.
The main day count conventions used in calculating the iBoxx $ indices are:
• ACT/360
• ACT/ACT
• ACT/365
• 30/360
• 30E/360
5.6.1 Interest payment dates
The following conventions are necessary for bonds that pay coupon at/around month-end:
• Non-EOM: Bonds with this convention pay on the same calendar day each
month, i.e. 30 June and 30 December
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• No Leap Year: Bonds that do not recognise 29 February but treat 29 February as 01
March
• Other bonds that pay at month-end always pay on the last calendar day on the
month, i.e. 30 June and 31 December
In addition, some bonds may pay interest on business days only. In this case the relevant
coupon payment conventions will be taken into account.
5.6.2 ACT/360
The accrued interest calculation is based on ISMA standards. In addition to the normal
coupon dates the calculation also takes odd first coupons, coupon changes during a period
and ex-dividend details into account.
Normal coupon date
SD − Dat (C i )
27. Ai ,t = ⋅ C ⋅ FAt ,i ,t
360
Normal first coupon
SD − FSD
28. Ai ,t = ⋅ C ⋅ FAt ,i ,t
360
Long first coupon
SD − FSD
29. Ai ,t = ⋅ C ⋅ FAt ,i ,t
360
Short first coupon
The calculation method for the accrued interest is similar to the previously described
calculation for the normal first coupon date.
Coupon changes
The following formula shows how to calculate the accrued interest when a coupon change
during a period occurs.
 Dat (C a , C b ) − Dat (C i ) SD − Dat (C a , C b ) 

30. Ai ,t =  ⋅ Ca + ⋅ C b  ⋅ FAt ,i ,t
 360 360 
For the coupon payment in the period of the coupon change the following formula applies:
Dat (C a , C b ) − Dat (C i ) Dat (C i +1 ) − Dat (C a , C b )

31. C i +1 = ⋅ Ca + ⋅ Cb
360 360
5.6.3 ACT/ACT
coupon dates the calculation also takes into account odd first coupons, coupon changes
during a period and ex-dividend details.
The calculation of the accrued interest is dependent on the coupon calculation. Most bonds
pay equal portions of the annual coupon at each payment date, but for some the coupon is
adjusted according to the actual length of the coupon period:
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32.
Normal coupon date
SD − Dat (Ci −1 )
33. Ai , t = ⋅ Cnext ⋅ FAt , i , t
Dat (Ci ) − Dat (Ci −1 )
Normal first coupon
SD − FSD
34. Ai , t = ⋅ Cnext ⋅ FAt ,i ,t
Dat (C1 ) − FSD
Long first coupon
The coupon payment is divided into a short and a normal coupon period. If the settlement
date lies between the first settlement date and the following fictive coupon date ( Dat (C F ) )
or the bond does not pay equal amounts at each coupon date, the accrued interest is
calculated as follows:
SD − FSD
35. Ai , t = ⋅ Cnext ⋅ FAt , i , t
Dat (CF ) − Dat (C F −1 )
Otherwise the accrued interest is calculated as follows:
 ( Dat (C F ) − FSD SD − Dat (C F )  C

36. Ai ,t =  +  ⋅ ⋅ FAt ,i ,t
 Dat (C F ) − Dat (C F −1 ) Dat (C1 ) − Dat (C )
F  m
Short first coupon
SD − FSD
37. Ai , t = ⋅ Cnext ⋅ FAt , i , t
Dat (C1 ) − Dat (CF −1 )
Coupon changes
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 Dat (Ca , Cb ) − Dat (Ci ) SD − Dat (Ca , Cb ) 

38. Ai , t =  ⋅ Cnexta + ⋅ Cnextb  ⋅ FAt ,i ,t
 Dat (Ci +1 ) − Dat (Ci ) Dat (Ci +1 ) − Dat (Ci ) 
Dat (Ca , Cb ) − Dat (Ci ) Dat (Ci +1 ) − Dat (Ca , Cb )

39. Ci +1 = ⋅ Cnexta + ⋅ Cnextb
Dat (Ci +1 ) − Dat (Ci ) Dat (Ci +1 ) − Dat (Ci )
5.6.4 ACT/365
coupon dates the calculation also takes into account odd first coupons, coupon changes
during a period and ex-dividend details.
Normal coupon date
SD − Dat (C i )
40. Ai ,t = ⋅ C ⋅ FAt ,i ,t
365
Normal first coupon
SD − FSD
41. Ai ,t = ⋅ C ⋅ FAt ,i ,t
365
Long first coupon
SD − FSD
42. Ai ,t = ⋅ C ⋅ FAt ,i ,t
365
Short first coupon
The calculation method for the accrued interest is similar to the previously described
calculation for the normal first coupon date.
Coupon changes
 Dat (C a , C b ) − Dat (C i ) SD − Dat (C a , C b ) 

43. Ai ,t =  ⋅ Ca + ⋅ C b  ⋅ FAt ,i ,t
 365 365 
Dat (C a , C b ) − Dat (C i ) Dat (C i +1 ) − Dat (C a , C b )

44. C i +1 = ⋅ Ca + ⋅ Cb
365 365
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5.6.5 30/360
The accrued interest calculation is based on ISDA standards. For two given dates m1/d1/y1
and m2/d2/y2,
1) If d1=31, then set d1=30.

2) If d2=31 and d1=30, then set d2 = 30.
Afterwards, the days between the two dates is calculated as follows:
45. DA(m1 / d1 / y1, m2 / d 2 / y 2) = ( y 2 − y1) ⋅ 360 + (m2 − m1) ⋅ 30 + (d 2 − d1)
Normal coupon date
The days between the settlement date and the last coupon date are calculated as follows:
DA( Dat (C i −1 ), SD)

46. Ai ,t = ⋅ C ⋅ FAt ,i ,t
360
First coupon date
DA( FSD, SD)

47. Ai ,t = ⋅ C ⋅ FAt ,i ,t
360
The same formula applies for irregular first coupon dates.
Coupon changes
 DA( Dat (C i ), Dat (C a , C b )) DA( Dat (C a , C b ), SD) 

48. Ai ,t =  ⋅ Ca + ⋅ C b  ⋅ FAt ,i ,t
 360 360 
DA( Dat (C i ), Dat (C a , C b )) DA( Dat (C a , C b ), Dat (C i +1 ))

49. C i +1 = ⋅ Ca + ⋅ Cb
360 360
5.6.6 30E/360
The accrued interest calculation is based on ISMA standards.
Normal coupon date

st
If one of the dates SD or Dat(Ci-1) is dated on the 31 , it is set to 30. The days between the
settlement date and the last coupon date are calculated as follows:
DA( Dat (C i −1 , SD) = ( y 2 − y1) ⋅ 360 + (m2 − m1) ⋅ 30 + (d 2 − d1)

50.
DA( Dat (C i −1 ), SD)

51. Ai ,t = ⋅ C ⋅ FAt ,i ,t
360
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First coupon date
DA( FSD, SD)

52. Ai ,t = ⋅ C ⋅ FAt ,i ,t
360
The same formula applies for irregular first coupon dates.
Coupon changes
 DA( Dat (C i ), Dat (C a , C b )) DA( Dat (C a , C b ), SD) 

53. Ai ,t =  ⋅ Ca + ⋅ C b  ⋅ FAt ,i ,t
 360 360 
DA( Dat (C i ), Dat (C a , C b )) DA( Dat (C a , C b ), Dat (C i +1 ))

54. C i +1 = ⋅ Ca + ⋅ Cb
360 360
5.7 Philippine net of tax calculations

The net of tax calculations adjust the bond and index calculations according to the Philippine
20% final withholding tax principle. A full set of net of tax prices, analytics and index data is
published.
5.8 Bond Analytics

A number of bond analytical values are calculated for each bond in the universe.
5.8.1 Expected remaining life
The expected remaining life is expressed in years. The calculation is depending on the
bond type and takes the day count convention of the bond into account.
Bullet bonds
• For plain vanilla bonds, the expected remaining life of the bond is its time-to-maturity,
calculated as the time between the re-balancing and its maturity date.
• Amortizing bonds
For sinking funds and amortizing bonds, the average life is used as a measure for the
expected remaining life of the bonds. The average life is calculated as the sum of the
distances to each future redemption cash flow weighted by the percentage redeemed
at the respective date. The redemption payments are not discounted:
∑ Ri, j ⋅ Li, j
j >t 1
ALi ,t = ⋅
∑ Ri, j m
j >t
• Fully redeemed bonds

The expected remaining life for fully redeemed bonds is 0.
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5.8.2 Redemption yield
The yield of a bond at time t is calculated as follows:
 F 
 Pi ,t + Ai ,t + XDi ,t − s ⋅ CPi ,r i,t − s  ⋅ Fi ,t
 Fi ,t 
 
55.
n
∑  CFi, j ⋅ (1 + yi,t )  + (XD
− Li , j
i ,t − s − 1) ⋅ CPi , r ⋅ Fi ,t − s ⋅ (1 + y i ,t )
− Lt ,1
=
j =1

The yield is set to 0 if either FAt,i,t or Fi,t are 0.
The coupon adjustment and the next cash-flow are included if XDi,t-s equals 1 and excluded
otherwise.
The Newton iteration method is applied to solve the equation for Yi,t .
The true yield is calculated as follows:
56. y t ,t = y i ,t ⋅ m , m…number of coupon payments per year
The periodic yield can be transformed into the annual yield:
y ai ,t = (1 + y i ,t ) − 1
m
57. ; m … number of coupon payments per year
And the semi-annual yield:
y 2i ,t = 2 (1 + y i ,t ) − 1 ; m … number of coupon payments per year

m
58.
 
5.8.3 Duration
The duration of a bond at time t is calculated as follows:

n
∑ CFi, j ⋅ Lt , j ⋅ (1 + yi,t )− Lt , j
j =1
Di ,t = n
∑ CFi, j ⋅ (1 + yi,t )− Lt , j
j =1
1
59. =
 F 
 Pi ,t + Ai ,t + XDi ,t − s ⋅ CPi ,r i ,t − s  ⋅ Fi ,t ⋅ m
 Fi ,t 
 
n
• ∑ CFi, j ⋅ Lt , j ⋅ (1 + yi,t )− Lt , j +(XDi,t −s − 1) ⋅ Lt ,1 ⋅ CPi,r ⋅ Fi,t −s ⋅ (1 + yi,t )−Lt ,1
j =1
The duration is set to 0 if either FAt,i,t or Fi,t are 0
5.8.4 Modified Duration
The true modified duration of a bond at time t using the period yield is calculated as follows:
1
60. MDi ,t = Di ,t ⋅
(1 + yi ,t )
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In the same way, the annual modified duration:

1
61. MDia,t = Di ,t ⋅
(1 + y ai ,t )
and the semi-annual modified duration:
1
62. MDi2,t = Di ,t ⋅
 y 2 i ,t 
1 + 2 

5.8.5 Convexity
The true convexity of a bond at time t is calculated as follows:
1
CX i ,t =
 F 
 Pi ,t + Ai ,t + XDi ,t − s ⋅ CPi ,r i,t − s  ⋅ Fi ,t ⋅ m 2
 Fi ,t 
63.  
n
⋅ ∑ CFi, j ⋅ Lt , j ⋅ ( Lt , j + 1) ⋅ (1 + yi,t )−(Lt , j +2 ) + (XDi,t −s − 1) ⋅ ⋅Lt ,1 ⋅ ( Lt ,1 + 1) ⋅ CPi,r ⋅ Fi,t −s ⋅ (1 + yi,t )−( Li,1+2)
j =1
The convexity is set to 0 if either FAt,i,t or Fi,t are 0
Similarly, using the corresponding yields, the annual convexity of the bond can be calculated
as:
( )
64. CX ia,t = CX i ,t ⋅ (1 + y ai ,t )
2 1 −1
m
m
(
− MDi ,t ⋅ 1 − 1 ⋅ (1 + y ai ,t ) ) 1 −2
m
And semi-annual convexity:
(
2 2 −1 ) (2 − 1) 2 −2
65. CX 2
= CX i ,t ⋅ (1 + y 2i ,t / 2) m
− MDi ,t ⋅ m (1 + y 2i ,t / 2) m
i ,t
2
5.8.6 Bond returns
Daily and month-to date bond returns are calculated for all bonds. The formulae below are
valid for the daily and the month-to-date calculations (for daily returns read (t-1) instead of (t-
s).
For indices expressed in local currencies only, the following bond return is calculated:
66. Daily local bond return:
Fi ,t
∑ XDi, j −1 ⋅ (CPi, j + Gi , j )⋅ Fi, j −1 ⋅ FAt ,i, j R ⋅ RP 
 ∑ XDi , j −1 ⋅ (CPi , j + Gi , j )Gi , j ⋅ Fi , j −1 ⋅ FAt ,i , j 
(Pi,t + Ai ,t ) + t − s < j ≤t + i ,t i,t
⋅ FAt ,i ,t −  Pi ,t − s + Ai ,t − s + t − s < j ≤ t −1 
Fi ,t −1 Fi ,t −1 Fi ,t −1  Fi ,t −1 
LCRiD,t =  
Pi ,t − s + Ai ,t − s + XDi ,t − s ⋅ CPi ,t − s
67. Month-to-date local bond return:
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Fi ,t F R ⋅ RPi , j
(P
i,t + Ai , t ) + ∑ XDi , j −1 ⋅ (CPi , j + Gi , j ) ⋅ i , j −1 ⋅ FAt , i , j + ∑ i , j ⋅ FAt ,i , j − (Pi ,t − s + Ai ,t − s + XDi ,t − s ⋅ CPi , t − s )
Fi ,t − s t − s < j ≤ t Fi ,t − s t − s < j ≤t Fi ,t − s
LCRiM, t =
Pi , t − s + Ai ,t − s + XDi , t − s ⋅ CPi , t − s
For indices expressed in foreign currency terms, the following additional return data are
necessary:
FX tCurr / USD − FX tCurr / USD

68. Currency Return: FXRtCurr / USD = / USD
−s
FX tCurr
−s
/ USD
69. Other Currency Return: FXROiCurr
,t = LCRi ,t ⋅ FXRtCurr / USD
/ USD / USD
Curr / USD
FX tCurr
− s ,t − FX tCurr
−s
HR t = / USD
70. Hedge Return:
FX tCurr
−s
/ USD
Where FX tCurr
− s ,t is defined as:
71. Forward rate:
FX tCurr
− s ,t
/ USD
= FX tCurr
−s
/ USD
+ FX tCurr
−s
/ USD
− FX tCurr
− s ,t + s(
/ USD
) t − (30t − s)
Curr / USD
72. Total Unhedged Return: FURiD,t / M = LCR iD,t / M + FXRtCurr / USD + FXROiCurr
,t
/ USD
Curr / USD
73. Total Hedged Return: FHRiD,t / M = LCRiD,t / M + HRtCurr / USD + FXROiCurr
,t
/ USD
5.8.7 Market value
The market value of the bond is calculated as follows:
74. MVi ,t =  Pi ,t + Ai , t + XD ⋅ CP  ⋅ Fi ,t ⋅ N i ,t − s
 i, t − s i, t 
The unhedged market value of the bond is calculated as follows:
75. MViU,t =  Pi ,t + Ai ,t + XD ⋅ CP  ⋅ Fi ,t ⋅ N i ,t − s ⋅ FX tCurr / USD

 i , t − s i, t 
The hedge effect of the index is included in the hedged market value of the bond in full:
76. MVi ,Ht =  Pi ,t + Ai ,t + XD ⋅ CP  ⋅ Fi ,t ⋅ N i ,t − s ⋅ FX tCurr / USD + MVi ,t − s ⋅ FX tCurr / USD

− FX tCurr / USD ( )
 i, t − s i, t  − s ,t
5.8.8 Base Market value
Similarly, the base market value denotes the market value of the bond at the last re-
balancing:
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77. MVi ,t − s = (Pi , t − s + Ai , t − s + XDi , t − s ⋅ CPi , t − s ) ⋅ Fi , t − s ⋅ N i ,t − s
The base market value for the hedged and unhedged indices is the same:
78. MVi ,Ht −/sU = (Pi ,t − s + Ai ,t − s + XDi ,t − s ⋅ CPi ,t − s ) ⋅ Fi ,t − s ⋅ N i ,t − s ⋅ FX tCurr

−s
/ USD
5.8.9 Cash payment
The cash payment holds all coupon and redemption payments since the last re-balancing:
 
79. CVi ,t =  ∑ Gi , j ⋅ Fi , j −1 ⋅ FAt ,i , j + ∑ Ri , j ⋅ RPi , j ⋅ FAt ,i , j  ⋅ N i ,t − s
 t − s < j ≤t t − s < j ≤t 
The cash payment for the hedged and unhedged indices is identical:
 
80. CVi ,Ht / U =  ∑ Gi , j ⋅ Fi , j −1 ⋅ FAt ,i , j + ∑ Ri , j ⋅ RPi , j ⋅ FAt ,i , j  ⋅ N i ,t − s ⋅ FX tCurr / USD
 t − s < j ≤t t − s < j ≤t 
5.9 Index Analytics

In addition to Price and Total Return Indices, a range of analytic indicators is calculated for
each index. All index analytics are calculated using bond analytics on an annual and semi-
annual basis. These index analytics are described below in detail.
5.9.1 Average Redemption Yield
The average yield is calculated by weighting the annual yield of each bond with the
corresponding market capitalization and duration of the respective bond.
Annual average yield:
a
∑ (y
i =1
a i,t ⋅ (Pi , t + Ai , t + XDi , t − s ⋅ CPi ,t ) ⋅ FAt ,i ,t ⋅ Fi ,t ⋅ N i , t − s ⋅ Di , t )
81. RY = i,t n
∑ ((P
i =1
i ,t + Ai , t + XDi , t − s ⋅ CPi ,t ) ⋅ FAt ,i ,t ⋅ Fi ,t ⋅ N i , t − s ⋅ Di , t )
Semi-annual average yield:
2
∑ (y
i =1
2i ,t ⋅ (Pi ,t + Ai ,t + XDi ,t − s ⋅ CPi , t ) ⋅ FAt ,i ,t ⋅ Fi ,t ⋅ N i ,t − s ⋅ Di , t )
82. RY = i,t n
∑ ((P
i =1
i ,t + Ai ,t + XDi ,t − s ⋅ CPi , t ) ⋅ FAt , i ,t ⋅ Fi , t ⋅ N i ,t − s ⋅ Di ,t )
Annual average portfolio yield:
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a
∑ (y
i =1
a i,t ⋅ (Pi ,t + Ai , t + XDi ,t − s ⋅ CPi ,t ) ⋅ FAt ,i ,t ⋅ Fi ,t ⋅ N i ,t − s ⋅ Di ,t )
RPY = i,t n
∑ ((P
i =1
i ,t + Ai , t + XDi ,t − s ⋅ CPi ,t ) ⋅ FAt ,i ,t ⋅ Fi ,t ⋅ N i ,t − s ⋅ Di ,t )
83. n
∑ ((P
i =1
i,t + Ai , t + XDi ,t − s ⋅ CPi ,t ) ⋅ FAt ,i ,t ⋅ Fi ,t ⋅ N i ,t − s )
⋅
n   
∑   P i,t + Ai , t ) ⋅ Fi ,t + ∑ XD i ,t − s ⋅ (CPi , t + Gi , j ) ⋅ Fi , j −1 ⋅ FAt ,i , j + ∑R i, j ⋅ RPi , j ⋅ FAt , i , j  ⋅ N i , t − s 

i =1  t − s < j ≤t t − s < j ≤t  
Semi-annual average portfolio yield:
∑ (y 2 i ,t ⋅ (Pi ,t + Ai ,t + XDi ,t −s ⋅ CPi ,t ) ⋅ FAt ,i ,t ⋅ Fi ,t ⋅ N i ,t −s ⋅ Di ,t )

RPYi ,2t = i =1
n
∑ ((P i ,t + Ai ,t + XDi ,t −s ⋅ CPi ,t ) ⋅ FAt ,i ,t ⋅ Fi ,t ⋅ N i ,t −s ⋅ Di ,t )

84. i =1
n
∑ ((P
i =1
i ,t + Ai ,t + XDi ,t −s ⋅ CPi ,t ) ⋅ FAt ,i ,t ⋅ Fi ,t ⋅ N i ,t −s )
⋅
n   
∑   P i ,t + Ai ,t ) ⋅ Fi ,t + ∑ XD i ,t − s ⋅ (CPi ,t + Gi , j ) ⋅ Fi , j −1 ⋅ FAt ,i , j + ∑R i, j ⋅ RPi , j ⋅ FAt ,i , j  ⋅ N i ,t − s 

i =1  t − s < j ≤t t − s < j ≤t  
5.9.2 Average Duration
The average duration is weighted with the market capitalization of the respective bonds,
where market capitalization is defined as the result of the dirty price of a bond multiplied by its
outstanding amount.
Average duration:
∑ (D ⋅ (P
i =1
i ,t i,t + Ai ,t + XDi , t − s ⋅ CPi ,t ) ⋅ FAt , i , t ⋅ Fi , t ⋅ N i , t − s )
85. DU i ,t = n
∑ ((P
i =1
i ,t + Ai ,t + XDi , t − s ⋅ CPi ,t ) ⋅ FAt ,i ,t ⋅ Fi ,t ⋅ N i ,t − s )
Average portfolio duration:
86.
n
∑ (D ⋅ (P
i =1
i,t i ,t + Ai ,t + XDi ,t − s ⋅ CPi , t ) ⋅ FAt ,i ,t ⋅ Fi , t ⋅ N i ,t − s )
DPU i ,t =
n   
∑   P i ,t + Ai , t ) ⋅ Fi , t + ∑ XD i ,t − s ⋅ (CPi , t + Gi , j ) ⋅ Fi , j −1 ⋅ FAt ,i , j + ∑R i, j ⋅ RPi , j ⋅ FAt ,i , j  ⋅ N i ,t − s 

i =1  t − s < j ≤t t − s < j ≤t  
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5.9.3 Average Modified Duration
The calculation method for the average modified duration is similar to that previously
described for the average duration except that duration is replaced with annual and semi-
annual modified duration.
Annual average modified duration:
a
∑ (MD ⋅ (P
i =1
a
i ,t i,t + Ai , t + XDi , t − s ⋅ CPi ,t ) ⋅ FAt ,i ,t ⋅ Fi ,t ⋅ N i ,t − s )
87. MDU = i,t n
∑ ((P
i =1
i ,t + Ai ,t + XDi ,t − s ⋅ CPi , t ) ⋅ FAt , i , t ⋅ Fi , t ⋅ N i , t − s )
Semi-annual average modified duration:
2
∑ (MD ⋅ (P
i =1
2
i ,t i,t + Ai , t + XDi , t − s ⋅ CPi ,t ) ⋅ FAt ,i ,t ⋅ Fi ,t ⋅ N i ,t − s )
88. MDU = i,t n
∑ ((P
i =1
i ,t + Ai ,t + XDi ,t − s ⋅ CPi , t ) ⋅ FAt , i , t ⋅ Fi , t ⋅ N i , t − s )
Annual average modified portfolio duration:
89.
n
a
∑ (MD ⋅ (P
i =1
a
i ,t i,t + Ai ,t + XDi , t − s ⋅ CPi ,t ) ⋅ FAt , i , t ⋅ Fi ,t ⋅ N i , t − s )
MDPU =
 
i,t
n 
∑ 

 P
 i,t
i =1  
+ Ai,t ) ⋅ Fi ,t + ∑ XDi ,t − s ⋅ (CPi,t + Gi, j ) ⋅ Fi , j −1 ⋅ FAt ,i , j + ∑ R i, j ⋅ RPi, j ⋅ FA 
t ,i , j  ⋅ N 
i ,t − s 
t − s < j ≤t t − s < j ≤t  
Semi-annual average modified portfolio duration:
90.
n
2
∑ (MD ⋅ (P
i =1
2
i ,t i,t + Ai ,t + XDi , t − s ⋅ CPi ,t ) ⋅ FAt , i , t ⋅ Fi ,t ⋅ N i , t − s )
MDPU =
 
i,t
n 
∑   P i,t + Ai , t ) ⋅ Fi ,t + ∑ XD i ,t − s ⋅ (CPi , t + Gi , j ) ⋅ Fi , j −1 ⋅ FAt ,i , j + ∑R i, j ⋅ RPi , j ⋅ FAt ,i , j  ⋅ N i ,t − s 

i =1  t − s < j ≤t t − s < j ≤t  
5.9.4 Average Convexity
The calculation method for the average convexity is similar to that previously described for the
average duration and average modified duration except that duration/modified duration is
replaced with annual and semi-annual convexity.
Annual average convexity:
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a
∑ (CX ⋅ (P
i =1
a
91. CXU = i ,t n
∑ ((P
i =1
i ,t + Ai , t + XDi ,t − s ⋅ CPi , t ) ⋅ FAt ,i ,t ⋅ Fi , t ⋅ N i ,t − s )
Semi-annual average convexity:
2
∑ (CX ⋅ (P
i =1
2
92. CXU = i ,t n
∑ ((P
i =1
i ,t + Ai , t + XDi ,t − s ⋅ CPi , t ) ⋅ FAt ,i ,t ⋅ Fi , t ⋅ N i ,t − s )
Annual average portfolio convexity:
93.
n
a
∑ (CX ⋅ (P
i =1
a
CXPU =
 
i ,t
n 
∑ 

 P
 i ,t
i =1  
+ Ai,t ) ⋅ Fi,t + ∑ XDi ,t − s ⋅ (CPi,t + Gi, j ) ⋅ Fi , j −1 ⋅ FAt ,i , j + ∑ R i, j ⋅ RPi, j ⋅ FA 
t ,i , j  ⋅ N 
i ,t − s 
t − s < j ≤t t − s < j ≤t  
Semi-annual average convexity:
94.
n
2
∑ (CX ⋅ (P
i =1
2
CXPU =
 
i ,t
n 
∑   P i ,t + Ai , t ) ⋅ Fi , t + ∑ XD i ,t − s ⋅ (CPi , t + Gi , j ) ⋅ Fi , j −1 ⋅ FAt ,i , j + ∑R i, j ⋅ RPi , j ⋅ FAt ,i , j  ⋅ N i ,t − s 

i =1  t − s < j ≤t t − s < j ≤t  
5.9.5 Average Coupon
The average coupon is calculated by weighting the coupon of each bond with the adjusted
amount outstanding of the respective bond. For bonds that indicate a coupon change, the
current coupon is included.
∑C
i =1
i ,t ⋅ FAt ,i ,t ⋅ Fi ,t ⋅ N i ,t − s
95. COt = n
∑F
i =1
i ,t ⋅ FAt ,i ,t ⋅ N i ,t − s
5.9.6 Average Expected Remaining Life
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The calculation method for the average time to maturity is similar to the previously described
calculation. A weighting is carried out using the adjusted amount outstanding.
∑ LF
i =1
i ,t ⋅ FAt ,i ,t ⋅ Fi ,t ⋅ N i ,t − s
96. LFU t = n
∑Fi =1
i ,t ⋅ FAt ,i ,t ⋅ N i ,t − s
LFi,t: Is the expected remaining life for all bonds (see chapter 5.8.1).
5.9.7 Nominal Value
The nominal value of all bonds is calculated as follows:
n
NVt = ∑F
i =1
i ,t − s ⋅ N i ,t − s
97.
5.9.8 Market Value
The market value of all bonds is the sum of all bond market values:
n
98. MVt = ∑ (Pi ,t + Ai , t + XDi ,t − s ⋅ CPi , t ) ⋅ Fi ,t ⋅ N i ,t − s
i =1
The hedged and unhedged market values are the sum of the hedged/unhedged market
values of the individual bonds.
5.9.9 Base Market Value
In the same fashion, the base market value of an index is:
n
99. MVt − s = ∑ (Pi ,t − s + Ai ,t − s + XDi , t − s ⋅ CPi ,t − s ) ⋅ Fi , t − s ⋅ N i , t − s
i =1
The hedged and unhedged based market values are the sum of the hedged/unhedged base
market values of the individual bonds.
5.9.10 Cash Payment
The cash payment of all bonds in an index is the sum of all coupon and scheduled
redemption payments plus the redemption value of all bonds that have already been fully
redeemed at time t:
n  
100. CVt = ∑  ∑ XDi ,t − s ⋅ (CPi ,t + Gi , j ) ⋅ Fi , j −1 ⋅ FAt ,i , j + ∑ Ri , j ⋅ RPi , j ⋅ F At , i , j  ⋅ N i , t − s
i =1  t − s < j ≤ t t − s < j ≤t 
The hedged and unhedged cash payments are the sum of the hedged/unhedged cash
payments of the individual bonds.
5.9.11 Index returns
Daily and month-to date index returns are calculated for all indices. The formulae below are
valid for the daily and the month-to-date calculations (for daily returns read (t-1) instead of (t-
s).For indices expressed in local currencies only, the following return needs to be calculated:
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TR t − TRt − s
101. Local index return: LCR tD / M =
TRt − s
For indices expressed in foreign currencies, the following additional returns need to be
published, currency, other currency and hedge return according to 5.8.6 as well as:
 TRt   FX tCurr / USD 

  ⋅  Curr / USD

TRt − s   FX t − s
=  −1
Curr / USD
102. Unhedged Index Return: FURtD / M
TRU t − s
103. Hedged Index Return:

 TRt   FX tCurr / USD  FX tCurr / USD
− FX tCurr / USD
  ⋅  
Curr / USD 
+ − s ,t
/ USD
TRt − s   FX t − s FX tCurr
= 
Curr / USD −s
FHRtD / M −1
TRH t − s
5.9.12 Index analytics for the iBoxx ABF Pan Asia Hedged and Unhedged Indices
The index averages of the Pan Asia indices are calculated:
∑ IA ⋅w
i
i ,t
Pan − Asia
i ,t − s ⋅ (1 + FRi ,t − s ,t )
104. IAVt =
∑w i
Pan − Asia
i ,t − s ⋅ (1 + FRi ,t − s ,t )
for market value weighted index averages and:
∑ IA ⋅w
i
i ,t
Pan − Asia
i ,t − s
105. IAVt =
∑w i
Pan − Asia
i ,t − s
for nominal value weighted averages.
5.10 Annotations
∆ i,t ............................................ Amount outstanding change at date t for bond i

Ai ,t ............................................ Accrued interest of bond i at date t
Ai ,t − s .......................................... Accrued interest of bond i at the last re-balancing before t
AI i ,t .......................................... Adjusted amount issued of bond i at date t
AI tTranche .................................... Total adjusted amount issued of all tranches at date t
ALi ,t .......................................... Average life of bond i at date t
AOt ........................................... Amount outstanding at date t
C ............................................... Annual coupon
C a ............................................. Next coupon before the coupon change
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C b .............................................. Next coupon after the coupon change

C F ............................................. Fictive coupon payment
C i .............................................. (Next) coupon payment
C i ,t ............................................. Current coupon of bond i at date t
CFi ,t .......................................... Cash-flow of bond i at date t quoted to a notional of 100
COt ........................................... Average coupon at date t
CPi ,t
.......................................... Coupon adjustment of bond i at time t during the bond’s ex-
dividend period
CPi , t − s
....................................... Coupon adjustment of bond i at the last re-balancing (t-s)
during the bond’s ex-dividend period
CVt ............................................ Index cash (amount of cash in the index) at date t
CVi ,t ......................................... Cash payment received for bond i between the last re-
balancing and date t
H /U
CV i ,t ..................................... Hedged/unhedged cash payment received for bond i
between the last re-balancing and date t
2
CX ......................................... Semi-annual convexity of bond i at date t
i ,t
CX ia,t ......................................... Annual convexity of bond i at date t

CX i ,t ......................................... Convexity of bond i at date t
CXPU i2,t ................................... Semi-annual average portfolio convexity at date t
CXPU ia,t ................................... Annual average portfolio convexity at date t
CXU i2,t ...................................... Semi-annual average convexity at date t
CXU ia,t ...................................... Annual average convexity at date t
Di ,t ............................................ Duration of bond i at date t
d1, d 2 ....................................... Day of date 1/2
DA(date1, date2) ......................... Function to calculate the number of days between two dates
for the 30/360 day count convention
Dat (C a , C b ) ............................ Date of coupon change
Dat (C i ) ................................... Date of coupon payment
DPU i ,t ...................................... Average portfolio duration at date t
DU i ,t ........................................ Average duration at date t
Fi ,t ............................................ Redemption adjustment factor for sinking funds and
amortizing bonds of fully redeemed bond i at date t
Fi , j −1 ......................................... Redemption adjustment factor for sinking funds and
amortizing bonds of fully redeemed bond i at date j-1, i.e. one
day before j
Fi ,t − s .......................................... Redemption adjustment factor of bond i at the last re-
balancing
FAt ,i , j ........................................ Flat of accrued flag of bond i and date j that is valid on date t
(0 if the bond is trading flat of accrued, 1 otherwise)
Curr / USD
FHRtD / M ........................ Hedged (D)aily/(M)onth-to-date index return at date t
D / M Curr / USD
FHRi ,t ....................... Hedged (D)aily/(M)onth-to-date return of bond i at date t
FRi ,t − s ,t ..................................... Month-to-date return (hedged or unhedged)
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FSD ......................................... First settlement date

Curr / USD
FURiD,t / M ....................... Unhedged (D)aily/(M)onth-to-date return of bond i at date t
Curr / USD
FURtD / M ........................ Unhedged (D)aily/(M)onth-to-date index return at date t
FX tCurr / USD ................................ Spot exchange rate to the Dollar at date t
/ USD
FX tCurr
−s ................................ Spot exchange rate to the Dollar at the last re-balancing
/ USD
FX tCurr
− s ,t ................................ Forward exchange rate to the Dollar at the last re-balancing
to date t
/ USD
FX tCurr
− s ,t + s ................................ 1-month forward exchange rate to the Dollar at the last re-
balancing
FXRtCurr / USD ............................... Currency return for currency (Curr) at date t
FXROtCurr / USD ............................ Other currency return for currency (Curr) at date t
Gt ............................................. Coupon payments of bond i received at date t
GI t ............................................ Gross price index at date t
GI t −s ........................................ Gross price index at the last re-balancing before t
GI tH ......................................... Hedged gross price index at t
H
GI t −s ........................................ Hedged gross price index at the last re-balancing
H /U
GI t −s ..................................... Hedged/unhedged gross price index at the last re-balancing
U
GI t ......................................... Unhedged gross price index at t
U
GI t ......................................... Unhedged gross price index at t
U
GI t −s
........................................ Unhedged gross price index at the last re-balancing
HRtCurr / USD ................................. Hedge return for currency (Curr) at date t
IAi ,t ........................................... Index analytics of index i at date t
IAVt ........................................ Pan Asia average of the index analytic at date t
ICt ............................................ Coupon income index at date t
ICt −s ......................................... Coupon income index at the last re-balancing before t
IC tH / U ..................................... Hedged/unhedged coupon income index at t
H /U
IC t −s ..................................... Hedged/unhedged coupon income index at the last re-
balancing
IN t ............................................ Income index at date t
IN t −s ......................................... Income index at the last re-balancing before t
IN tH / U ..................................... Hedged/unhedged income index at t
H /U
IN t−s ..................................... Hedged/unhedged income index at the last re-balancing
IRt ............................................ Redemption income index at date t
IRt −s .......................................... Redemption income index at the last re-balancing before t
IRtH / U ...................................... Hedged/unhedged redemption income index at t
H /U
IR t −s...................................... Hedged/unhedged redemption income index at the last re-
balancing
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Lt , j ............................................ Time difference in coupon periods between t and j

LCR iD,t ........................................ Daily local currency return of bond i at date t
LCRtD / M .................................... (D)aily/(M)onth-to-date local index return at date t
LCRiM,t ........................................ Month-to-date local return of bond i at date t
LFi ,t .......................................... Expected remaining life of bond i at date t
LFU t ........................................ Average expected remaining life at date t
m .............................................. Coupon frequency (number of coupon payments per year)
m1, m 2 ...................................... Month of date 1/2
MDi2,t ........................................ Semi-annual modified duration of bond i at date t
MDia,t ........................................ Annual modified duration of bond i at date t
MDi ,t ........................................ Modified duration of bond i at date t
MDPU i2,t .................................. Semi-annual average modified portfolio duration at date t
MDPU ia,t .................................. Annual average modified portfolio duration at date t
MDU i2,t ..................................... Semi-annual average modified duration at date t
MDU ia,t ..................................... Annual average modified duration at date t
MVi ,t .......................................... Market value of bond i at date t
MVi ,t − s ....................................... Base market value of bond i at the last re-balancing
MVi ,Ht / U .................................... Hedged/unhedged market value of bond i at date t
MVi ,Ht −/sU .................................... Hedged/unhedged base market value of bond i at the last re-
balancing
MVt ........................................... Market value of the index at date t
MVt − s ........................................ Base market value of the index at the last re-balancing
n ............................................... No. bonds/future cash-flows
N i ,t ............................................ Adjusted amount issued of bond i at date t
N i ,t − s ......................................... Adjusted amount issued of bond i at the last re-balancing
NV t ............................................ Nominal value at date t
P ............................................... Normal coupon period
Pi ,t ............................................. Clean price of bond i at date t
Pi ,t − s .......................................... Clean price of bond i at the last re-balancing
PI t ............................................ Price index level at date t
PI t − s .......................................... Price index level at the last re-balancing
PIH t ......................................... Hedged clean price index level at date t
PIH t − s ...................................... Hedged clean price index level at the last re-balancing
PIU t ......................................... Unhedged clean price index level at date t
PIU t − s ...................................... Unhedged clean price index level at the last re-balancing
Ri ,t ............................................ Redeemed portion of the issue (in % of par) of bond i at date t
RPi ,t .......................................... Redemption price of a redeemed portion of bond i at date t
RPYi ,at ....................................... Annual average portfolio yield at date t
RPYi ,2t ....................................... Semi-annual average portfolio yield at date t
RYi ,2t .......................................... Semi-annual average yield at date t
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RYi ,at .......................................... Annual average yield at date t

SD ............................................ Settlement date
TRt ............................................ Total return index level at date t
TRt − s .......................................... Total return index level at the last re-balancing
TRH tCurrency ................................ Hedged total return index level at date t
TRH tCurrency
−s ................................ Hedged total return index level at the last re-balancing
TRU tCurrency ................................ Unhedged total return index level at date t
TRU tCurrency
−s ................................ Unhedged total return index level at the last re-balancing
t − s .......................................... Date of last re-balancing
− Asia
wiPan
,t − s .................................... Weight of index i in the Pan Asia index
XDi , t − s ...................................... Ex-dividend indicator, is 0 if the bond enters the index
(family) during the current re-balancing, otherwise 1
y1, y 2 ....................................... Year of date 1/2
y 2i ,t ........................................... Semi-annual yield of bond i at date t
y ai ,t ........................................... Annual yield of bond i at date t
yi ,t ............................................ Periodic yield (yt,t/m) of bond I at date t
yt ,t ............................................ True yield at date t
5.11 Consolidation parameters
Standard (bps) Warning Maximum

Maximum distance 200 350 500
Outer distance 150 300 450
Inner distance 100 250 400
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6 Further information
• International Index Company

Goetheplatz 5
60313 Frankfurt
Germany
Phone: +49-69-299 868 140
Fax: +49-69-299 868 149
E-mail: info@indexco.com
Internet: www.indexco.com
• Licences and Data

iBoxx is a registered trademark of International Index Company Limited (IIC). IIC owns all
iBoxx data, database rights, indices and the intellectual property rights therein. A licence is
required from IIC to create and/or distribute any product that uses, is based upon or refers to
any iBoxx index or iBoxx data.
• Ownership
IIC is a wholly-owned subsidiary of Markit Group.
www.markit.com.
• Other index products

IIC owns, manages, compiles and publishes the iTraxx credit derivative indices and the
iBoxxFX Trade Weighted Indices.
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Markit iBoxx ABF

5.2.4 Bonds trading flat of accrued ............................................................................. 26

5.10 Annotations ............................................................................................................ 43

Changes to the iBoxx ABF index family

2 Bond selection rules and index re-balancing

2.1 Local bond index selection criteria

The selection of bonds from quasi-sovereign issuers is described in chapter 2.1.6.

2.1.1 Bond type

The following bonds are eligible:

2.1.2 Credit rating requirement and issuer classification

Market of origin restrictions

• China, People’s Republic of

The four main sub-sovereign categories are:

Examples in the current index universe include:

Agencies are entities whose major business is to fulfil a government-sponsored role to

Different categories of Agencies

(i) Development banks are entities providing

• China Development Bank

or (b) financial access/support for specific customer segments such as agriculture

(i) Airport authorities and airports, such as:

(ii) Industrial parks or rural infrastructure developments, incl.:

(iii) Railroads and/or public transport services, such as:

(iv) Road infrastructure, e.g.:

Commercial providers of transportation services, such as airlines or private transportation

The main utilities are:

(ii) Gas and (iii) water, e.g.:

Treatment of subordinated debt from quasi-sovereign issuers

Supranationals need to have at least AA- rating.

Classification review procedure

2.1.3 Bond life at issuance

2.1.4 Time to maturity

2.1.5 Amount outstanding

Market Currency Sovereigns Quasi sovereigns

2.1.6 Limit on the number of issues per quasi sovereign issuer

There are no restrictions on the number of issues for sovereign debt.

zi(x) ................................. z-score of bond i regarding value x

zi(AO) .............................. Amount outstanding z-score of bond i

The combined z-score attaches a weight of:

3. z i* = 0.5 • z i ( AO ) + 0.2 • z i (TTM ) − 0.3 • z i ( Age)

zi(Age)............................. Age z-score of bond i

2.2 Market weights

2.2.2 Market weight composition

• Local bond market size (S)

The individual factors are described below.

2.2.3 Adjustment factors

Local bond market size

Sovereign local debt rating

Calculation of the adjustment

Each factor is normalized using the following method:

where: fi,j ...................................... Original value of factor j in market i

2.2.4 Combined adjustment factor

2.2.5 Review of individual market weights

2.2.6 Current weights

2.2.7 Historical weights

2.3 Index re-balancing procedure

3 End-of-day price consolidation procedure

3.1 Price contribution

3.2 Automated pre-consolidation price quality control processes

3.2.1 Stand-Alone Check (First Filter)

The stand-alone check verifies the following criteria:

Comparative checks - Example

Description of the comparative checks (bid quotes):

3.3 iBoxx Consolidation Algorithm

3.4 Publication of iBoxx prices

4 Data for iBoxx ABF Index Calculation