- Cboe is set to launch the Cboe iBoxx Emerging Market Bond Index futures next month.
- This new financial instrument aims to provide exposure to bonds issued by emerging market governments and sub-sovereign entities.
- “Whether investors or fund managers are looking to hedge current positions or gain broad exposure to the market for bonds issued by governments or sub-sovereign issuers from emerging market countries, IEMD futures are designed to provide that exposure in a U.S. regulated and capital efficient manner,” said Rob Hocking, Senior Vice President at Cboe Global Markets.
Discover how Cboe’s new Emerging Market Bond Index futures can offer a regulated and efficient way to manage risk and gain exposure to emerging market debt.
IEMD Futures for Bonds Issued by Emerging Markets
The IEMD futures will be based on the S&P Dow Jones Indices’ iBoxx USD Liquid Emerging Market Sovereigns & Sub-Sovereigns Index (ticker: IBXXEMLQ). These futures will provide exposure to U.S. dollar-denominated bonds issued by governments or sub-sovereign issuers from emerging market countries. Investors can use IEMD futures to hedge existing exposures, implement relative value strategies against other fixed-income instruments, and manage interest rate and credit risk. The futures will be exchange-traded and centrally cleared, ensuring operational simplicity and limiting counterparty risk compared to over-the-counter instruments.
Starting June 17, the IEMD futures will be cash-settled and available for trading nearly 24 hours per weekday, allowing global investors to manage risk more efficiently. The Cboe Futures Exchange plans to list up to four near-term serial contract months and four contract months on the March quarterly cycle for IEMD futures. As of April 30, 2024, the underlying index had 535 constituents across 46 emerging market countries, including Mexico, Argentina, and the United Arab Emirates, with an estimated aggregate amount outstanding of $1.03 trillion.
The index methodology ensures that only bonds with at least $1 billion amount outstanding at rebalancing are included, and it excludes any country in default on its external debt or subject to financial sanctions by the United States or European Union.
New Ways to Manage Risk Across Asset Classes
Rob Hocking, Senior Vice President and Head of Product Innovation at Cboe Global Markets, emphasized the significance of this launch: “We are excited to build upon Cboe’s ongoing collaboration with S&P Dow Jones Indices and expand Cboe’s credit market offerings to include emerging market futures. Cboe changed the way investors traded volatility 20 years ago with the launch of VIX futures, and today we continue to innovate and strategically offer new ways to manage risk across asset classes.”
Frans Scheepers, Global Head of Fixed Income, Currency and Commodities Products at S&P Dow Jones Indices, added: “S&P Dow Jones Indices’ iBoxx USD Emerging Markets Broad Index Series was launched in January 2024 to offer global investors an independent market performance gauge to support their renewed and growing interest in shorter duration, higher yielding fixed income exposures to developing markets for risk management and diversification purposes. S&P DJI is pleased to license the iBoxx USD Liquid Emerging Market Sovereigns & Sub-Sovereigns Index, which was launched in March 2024, and is designed specifically for use with tradable products to Cboe, further strengthening the liquid ecosystem of financial products that are tracking our innovative and pioneering fixed income benchmarks.”
In addition to IEMD futures, CFE currently offers investors exposure to high yield and investment grade U.S. corporate debt through its Cboe iBoxx iShares Bond Index futures and options on futures offering.
Conclusion
The introduction of Cboe’s IEMD futures marks a significant development for investors seeking regulated and efficient exposure to emerging market debt. With nearly 24-hour trading availability and central clearing, these futures provide a valuable tool for managing risk and implementing diverse investment strategies. As the market for emerging market bonds continues to grow, the IEMD futures offer a timely and innovative solution for both hedging and speculative purposes.
