How Bond Index Rules Handle Bonds Approaching Maturity

Summary

The document explains how an underlying bond's approach to maturity affects its inclusion in a high-yield bond index. Under the cited iBoxx USD High Yield Developed Markets Index Guide, an existing constituent must have at least one year of expected remaining life at a rebalancing date. A new insertion must have at least one year and six months remaining.

Because the index rebalances monthly at month end, a bond that remains eligible at one rebalance may fall below the minimum by the next. The answer consequently estimates that constituents are removed at least eleven months before maturity. It also clarifies the relationship between the products in the question: the ETF tracks the index, rather than the index tracking the ETF. The explanation is specific to the cited index and its eligibility rules; other bond indices may use different criteria or schedules, so the timing should not be generalized across fixed-income benchmarks.

Key ideas

• The cited high-yield index requires existing constituents to meet a minimum remaining-life threshold at rebalance.
• New index additions face a longer remaining-life requirement than existing constituents.
• Monthly month-end rebalancing means a bond can be excluded well before its maturity date.
• An ETF may track a bond index; the index itself does not track the ETF.

Tags

# What happens to bond indices, say IBXXIBHY, when any underlying bond matures?


# What happens to bond indices, say IBXXIBHY, when any underlying bond matures?












This Index tracks HYG ETF, so What happens to that will help, if someone can explain. Thanks

## Answer by Luca (score 2)

https://quant.stackexchange.com/a/60025

According to the selection criteria in Section 2.3 of the iBoxx USD High Yield Developed Markets Index Guide

> All bonds must have at the rebalancing day an expected remaining life of at least one year, and all new insertions must have an expected remaining life of at least one year and 6 months.

Since rebalancing happens once a month at month end, bonds are excluded from the Index at least eleven months before they mature. By the way, it's the ETF that tracks the Index, not the other way around. Hope this clarifies your question.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.