Why more bond indices need to assess issuer strength

Kevin Corrigan, head of fundamental fixed income at Lombard Odier Investment Managers, says the conventional approach to bond investment can act against the interests of investors. Is it time for a new approach?

Bond investors have plenty to worry about, not least the low yield on government and corporate bonds - and some pay no yield at all. I am about to add to bond investors' woes: the conventional approach to bond investment can act against the interests of investors. Like it or not, a bond investor is lending money to the bond issuer in the hope of enjoying regular interest payments and return of capital when the bond matures. Traditional bond indices are calculated on a ‘market cap' basis, ie, by counting the amount already borrowed by an issuer (a country or a company).  Generally speaki...