Tapping into liquidity in the high-yield bond market: index and pricing

While high-yield bonds have generally been excluded from traditional aggregate-type fixed income benchmarks in the past, they remain a growing asset class that has historically offered yields exceeding those of investment-grade debt. In exchange for incremental yield, however, high-yield bonds can be associated with heightened credit and liquidity risk. Designed to track the most liquid instruments in the high-yield market, the iBoxx USD Liquid High Yield Index has served as this market’s leading benchmark since its debut in 2006. In part one of this two-part white paper, we examine the components of the iBoxx USD Liquid High Yield Index that have demonstrated potential mitigation of liquidity risk. The research measures the effectiveness of the index methodology in current markets through bond liquidity analysis.