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Replicating Bond Index Returns from Constituent Data

Article Quant Q&A · Author: Lepidopterist
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Summary

The document asks whether Bloomberg Barclays monthly total and excess returns can be reproduced from constituent-level index data, including constituent returns, market values, and excess returns. The author reports a close but imperfect tie-out for a broad index and a larger discrepancy for a sub-index, and asks whether exact replication requires additional data or a more precise implementation of the published methodology.

The response begins by emphasizing that replication depends on methodological details, but the excerpt ends before it lists any checks or offers a resolution. It therefore provides no specific aggregation procedure, explanation for the reported tracking differences, or evidence about whether exact replication is possible. The useful lesson is limited to the practical challenge: constituent data and a published methodology may not by themselves make an index return calculation straightforward, and reconciliation requires examining implementation details. The reported discrepancies are the author's experience, not general performance benchmarks.

Key ideas

  • The author attempts to reproduce monthly total and excess bond-index returns from constituent data.
  • The reported replication discrepancies differ between the broad index and the sub-index.
  • The response points to methodological details as a likely area to investigate.
  • The excerpt ends before providing a procedure or explaining whether additional data are required.

Tags

Fixed incomeBacktestingPortfolio construction
Full text
# Replicating Bloomberg Barclays index and sub-index monthly total and excess returns using constituent-level index-data


# Replicating Bloomberg Barclays index and sub-index monthly total and excess returns using constituent-level index-data












Bloomberg Barclays index returns (e.g. LF98TRUU Index "index_total_return_mtd" & "index_excess_return_mtd") and sub-index returns (e.g. BCBATRUU Index "index_total_return_mtd" & "index_excess_return_mtd") are published by Bloomberg. Index constituent returns, market-values, and excess returns are also available through Bloomberg.

I have access to the constituent-level data from Bloomberg and would like to replicate the monthly returns from the bottom up. Bloomberg publishes their methodology here: https://data.bloomberglp.com/professional/sites/10/Index-Methodology-2019-07-10.pdf

However, I am unable to exactly tie-out the returns. I can get within 4bps of tracking error to LF98TRUU-index_total_return_mtd & index_excess_return_mtd, and about 27 bps of tracking error to BCBATRUU total/excess returns.

Question: Is it possible to exactly replicate these indices using the Bloomberg Barclays constituent data (edited to specify this constraint)? Or does replication somehow require other data?

If the answer is yes, then I must be doing something wrong and may create another question to go over my understanding of the methodology and where an error may be introduced.

## Answer by Helin (score 3)

https://quant.stackexchange.com/a/67950

The devil's in the details. Here are a few things to check off the top of my head:

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

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