The global sovereign debt market is one of the largest in the world, and its structure can introduce distinct portfolio allocation considerations relative to other asset classes. The traditional method of fixed income benchmarking, using market-weighted indices, is operationally efficient: it is self-rebalancing and does not require forced trades. By design, it reflects the size of outstanding debt markets, which can result in higher allocations to more indebted sovereign issuers.
The FTSE GDP-Weighted Government Bond Index Series offers a range of solutions that reallocate issuer weights based on real economic output. The indices measure the performance of fixed-rate, local currency sovereign bonds, with country weights determined in proportion to each country’s PPP-adjusted GDP.
About the index
Purchasing Power Parity (PPP) adjustment provides a “pure” view of economic output and growth, filtering currency volatility and offering a stable comparison that accurately reflects the production strength of smaller markets. The index series includes the following indices, along with additional segmentations and customisation capabilities:
- FTSE GDP-Weighted World Government Bond Index
- FTSE GDP-Weighted Emerging Markets Government Bond Index
- FTSE GDP-Weighted World Government Bond Index – Developed Markets
- FTSE GDP-Weighted Non-USD World Government Bond Index
Index construction
The FTSE GDP-Weighted Government Bond Index Series consists of bonds in their respective underlying benchmark, weighted by the respective GDP of their country.
At each monthly index rebalance, the overall market value weight of each country is set in proportion to its relative Gross Domestic Product (GDP). The GDP data is updated on a semi-annual basis effective with the May and November index profiles. GDP data is sourced from the World Economic Outlook (WEO) database, which is maintained by the International Monetary Fund (IMF) and generally updated each April and October.
| GDP-Weighting Process | |
|---|---|
| Step 1 | Determine GDP weights of each country as a % of the total GDP of included countries |
| Step 2 | Determine a scale factor for each country as the ratio of the country GDP weight to the original profile weight |
| Step 3 | *If GDP is applied as a factor tilt instead of pure weighting, adjust the scale factor (SF) by the tilt (T) as follows: SF_NEW = (SF_OLD - 1) × T + 1 |
| Step 4 | Multiply the par amount and market value of each bond by the assigned country scale factor |
| Step 5 | Recalculate risk and return metrics |
*Applies only to custom versions.