Lending markets

Turbulent Markets Emphasize Assessed Prices

Fixed income volatility is expected to persist for some time, due to the seesaw shifts in the global economy. Jayme Fagas, Global Head of Valuations and Transparency Services at Refinitiv, explains why in such an environment, companies need to have the right assessed pricing to ensure they are valuing their portfolios at fair value levels and complying. to regulations

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Over the past three years, fixed income indices have experienced significant market volatility due to global events. Just 12 months ago, interest rates were at historic lows, while today central banks are rapidly raising rates.

Economic growth projections are rewritten more frequently than UK weather forecasts, where four seasons are often experienced in a single day.

What is the evaluated price?

In these turbulent market conditions, it is essential that the bond valuation underlying the bond indices is as representative as possible.

Most bond trades are negotiated privately, so trading fixed income securities – and the indices that follow it – relies more on valuated prices, unlike stocks.

Evaluated pricing is an approach that combines the advantages of mark-to-market and mark-to-model to generate prices for fixed income instruments. It values ​​instruments on a mark-to-market basis where possible and will use methodologies and models to produce a fair value where necessary.

Patterns can have a range of entries, depending on the fixed income instrument being tracked.

Refinitiv Evaluated Pricing Service: Discover sophisticated solutions for evaluated pricing data, including intraday and end-of-day pricing, and real-time quote data, from a fully compliant source

High Yield Debt Pricing

A good example of recent trends is the high yield bond market.

In 2021, this market saw a surge in issuance and investor interest. In an economic environment characterized by very low interest rates and booming economic growth, yields on high-yield bonds – also known as “junk bonds” – looked very attractive.

WE high yield indices

In the first months of 2022, the situation has completely changed. With inflation and interest rates rising – and an unstable economic outlook – high-yield debt looks a lot riskier.

In this rapidly changing environment, getting the right assessed price is more important than ever.

High yield bonds should be valued individually, primarily on the basis of price using the primary underwriter as the primary source of information. This is a process that requires considerable expertise, especially when individual high yield bonds are not traded very often.

Earlier in 2022, FTSE Russell moved to Refinitiv Fixed Income pricing to support the FTSE WE High-Yield Market Index, as well as the indices that derive their membership.

the FTSE WE The high yield market index is a WE dollar-denominated index that measures the performance of high yield debt issued by companies whose country is Australia, Belgium, Canada, France, Germany, Italy, Japan, the Netherlands , Sweden, Switzerland, UK or the WEaccording to FTSEmethodology.

Projected impact of the change in pricing source for the FTSE WE High Yield Market Index

Risk_0522_Refinitv Table 1

The same time, FTSE Russell also switched to Refinitiv assessed pricing for the FTSE Dim Sum (offshore) CNY) Bond Index, which measures the performance of Chinese yuan offshore “dim sum” bonds that are issued and settled outside of mainland China.

The index covers fixed rate securities issued by governments, agencies, supranationals and corporations.

Projected impact of the change in pricing source for the FTSE Dim Sum (at sea CNY) Bond index

Risk_0522_Refinitv Table 2

“In assessing the potential for change in the source of prices on our indices, we have carefully considered both quantitative and qualitative assessments, reviewing them within the rigor of our governance processes,” says Marina Mets, Managing Director. of FTSE Russell, also a London Stock Exchange Group company.

Mets added, “The fixed income data quality, accuracy and transparency of Refinitiv’s assessed pricing service has proven to be very strong and highly comparable to other assessed pricing offerings we have reviewed. The exam ended with FTSE Russell deciding to use Refinitiv Fixed Income pricing – including the Refinitiv assessed pricing service – for these indices.

Offer high quality prices

To ensure quality, the pricing data evaluated by Refinitiv undergoes a wide range of checks. Refinitiv Evaluated Pricing Services gathers data from many trusted sources, including exchanges, issuers and underwriters. This data is verified and curated by Refinitiv’s global teams of data analysts and experts, who actively monitor data quality and continually improve processes. Many of these employees speak local languages ​​and are closely linked to local markets.

One of the strengths of Refinitiv Evaluated Pricing Service is its global reach, meaning its ability to collaborate and coordinate across geographic locations.

Another strength is transparency – customers can speak directly with the team that generates pricing. These relationships are considered true partnerships by Refinitiv Evaluated Pricing Services.

Sources of high-quality financial news and information

Refinitiv Evaluated Pricing Services has access to high-quality news and financial information on monitored companies, including through the Refinitiv Eikon terminal, and news from Reuters and International Funding Reviewas well as credit default swap curves, central bank information, corporate financial data and other sources.

It also has strong ties to market players and continued access. The evaluators themselves have high quality skills and in-depth expertise in the field.

This in-depth expertise means that, at times, Refinitiv will be the only provider in the market to offer a price for certain very difficult to price fixed income instruments.

Additionally, Refinitiv Fixed Income data is available through a range of delivery platforms and benefits from Refinitiv’s proprietary identification system, PermID.

In today’s volatile fixed income trading environment, it is important that companies can trust their sources to assess prices. Refinitiv Evaluated Pricing Services has a wide range of information sources and in-depth subject matter expertise. For companies looking for robust evaluated pricing, this is a winning combination.

Refinitiv Evaluated Pricing Service: Discover sophisticated solutions for evaluated pricing data, including intraday and end-of-day pricing, and real-time quote data, from a fully compliant source