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Cboe, BlackRock and IHS Markit Plan First US Corporate Bond Index Futures

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Cboe Global Markets is teaming up with BlackRock, the world’s largest asset manager, and IHS Markit Ltd., a global data and analytics firm, to develop the first broad-based U.S. corporate bond index futures.

The new products will be based on the same IHS Markit iBoxx indexes that underpin BlackRock’s high-yield (HYG) and investment-grade (LQD) indexes. They will be listed and trade on the Cboe futures exchange pending regulatory review by the Commodity Futures Trading Commission, and they are expected to launch this summer, starting with the high-yield index futures product.

The corporate bond index futures will function as a “tool to mitigate credit risk in the corporate bond market,” said Chris Concannon, Cboe president and chief operating officer, in a statement.

Martin Small, head of U.S. iShares at BlackRock, said in the same statement that the products will represent “a quantum leap forward towards better bond markets …  that can help improve “price transparency and liquidity of corporate bond markets.”

The index futures products will also provide investors with “broad coverage to hedge against risk,” said Aram Flores, the global head of indices at IHS Markit.

Bond investors have traditionally used credit default swaps to hedge credit risk in the bond market, but their use has declined since the financial crisis, in which they played key roles in the failure of Bear Stearns, Lehman Brothers and AIG, which was the only one of the three to be bailed out by the government. Since then, some investors have used ETFs to hedge bond portfolios, but they are more expensive than futures contracts, which typically require a margin of just 5% to 15% to access the full value of a contract.

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