iTB Corporate Bond Indices July Performance

Keeping in mind our mission to enhance the flow of information and increase the level of transparency of the bond markets, we introduced the iTB Corporate Bond Indices that
track the most actively traded investment grade bonds in the fixed
income markets. The bonds selected span across various sectors and
industries so that the index serves as a fair representation of the
broader corporate markets. As rates have declined due to rising risks of
an economic slowdown and declining inflation expectations, the bond
markets have outperformed most asset classes, as apparent by the July
performance of the ITB indices.

iTB-CBI 1-5

Since its inception on July 12, the iTB CBI 1-5, which tracks the performance of 20 bonds having less than 5 years to maturity, ended the month at 1076.61 for a gain of 1.35%
on a price basis. When including interest earned since inception, the
index posted a total return of 1.64%.

The average yield for the index fell by 48 basis points or 0.48% to 2.69% at the end of the month fueled by a combination of lower Treasury rates and compressing credit
spreads. The spread over comparable maturity Treasuries tightened 25
basis points to 1.76% during the same period as corporate bonds
outperformed.

The best performer for the month, as seen by the narrowing of spreads was BP Plc’s 5.25% bonds maturing November 2013. As the firm sealed the leaking well with a tighter cap,
and started operations to seal the well permanently, the bond rallied in
July, posting a total gain of 3.98%. In this period, its spread to
Treasuries tightened by 95 basis points to 3.95%. The rally is mainly a
return to its true yield, as the bond fell rapidly after the explosion
of its oil-rig Deepwater Horizon on April 28. Compare the return of the
bond with its stock, which returned 4.64% over the same period. Given
the much higher risk of holding stocks over bonds, BP bonds posted
impressive returns.

The worst performer for the period was Kraft’s 5.625% bonds maturing November 2011. The bond returned a total of 0.13% as its spread widened by 0.07% to 1.29%. Its counterpart
in the longer end, a 5.375% bonds maturing February 2020, performed
comparatively better, returning 2.91% in that time horizon (Jul 12 –
July 30).

iTB CBI 5+

The long iTB index gained 1.91% on a price basis in July, ending at 1126.81. When accrued interest in included, the index gained a total of 2.22%. The index marginally
outperformed S&P, which gained a total of 2.18% (including
reinvested dividend) over the same period.

The average yield on the index fell 28 basis points to 4.27% on July 30. Spread to Treasuries with comparable maturity tightened 9 basis points to 1.64% as credit risk
premium demanded by investors decreased.

The best performer of the index was the U.K. based steel giant ArcelorMittal. Its 9.85% bond maturing in June 2019 returned a total of 4.35% over the period. The price of the
bond appreciated in price to 129.20 on July 30 from 124.34 on July 12.
The spread to comparable Treasuries tightened 43 basis points to 3.04%.

The worst performer over the period was Microsoft’s 4.2% bonds maturing in June 2019. The bonds returned 0.32% over the period, as the spreads on the only AAA rated
bond in the index widened 18 basis points to 0.30%.