The futures are based on indices published by Bloomberg Index Services. The indices are widely used by various market participants as benchmarks due to the representative nature of their respective fixed income sub-asset classes.

The Bloomberg U.S. Corporate Investment Grade Index (Bloomberg Terminal ticker: LUACTRUU) measures the investment grade, fixed-rate, taxable corporate bond market. It only includes U.S. dollar-denominated debt issued by U.S. and non-U.S. industrial, utility and financial companies. The index is a subcomponent of the U.S. Credit and U.S. Aggregate Indices. The index was launched in January 1979, with data backfilled to January 1973.

Criteria for security inclusion:

• Credit quality:² Securities must be rated investment grade (Baa3 / BBB- / BBB-) using the middle rating of Moody’s, Standard & Poor’s and Fitch ratings 
• Issue size: $300mm minimum par amount outstanding  
• Weighting: Constituents are weighted based on market value of the debt issue 
• Maturity: At least one year until final maturity, regardless of optionality 
• Taxability: Only fully taxable securities 
• Rebalancing frequency: Month end

The Bloomberg U.S. High Yield Very Liquid Index (VLI) (Bloomberg Terminal ticker: LHVLTRUU) is a component of the U.S. Corporate High Yield Index that is designed to track a more liquid component of the U.S. dollar-denominated, high yield, fixed-rate corporate bond market. The U.S. High Yield VLI has a higher minimum security size for inclusion ($500mm vs $150mm) than the U.S. Corporate High Yield Index, which is designed to allow the index to track more liquid bonds. The index was launched in January 2002, with data backfilled to January 1994. 

Criteria for security inclusion:

• Credit quality: Securities must be rated investment grade (Ba1 / BB+ / BB+) using the middle rating of Moody’s, Standard & Poor’s, and Fitch ratings 
• Issue size: $500mm minimum par amount outstanding  
• Weighting: Constituents are weighted based on market value of the debt issue 
• Maturity: At least one year until final maturity, regardless of optionality 
• Taxability: Only fully taxable securities 
• Rebalancing frequency: Month end

The liquidity characteristics and tracking performance of the Bloomberg U.S. Corporate High Yield Very Liquid Index can be found via Bloomberg³.

Bloomberg’s Duration Hedged indices combine a corporate credit index with an index representing short positions in CME Group U.S. Treasury futures across the curve to create an index that represents only the credit risk of corporate debt.  

The Bloomberg U.S. Corporate Investment Grade Duration Hedged Index (Bloomberg Terminal ticker: I30287US) uses the U.S. Corporate Investment Grade Index as the notional long position within the index and a basket of U.S. Treasury futures as the notional short position within the index. The index was launched in August 2013, with data backfilled to May 1999. 

The notional short position consists of the 2-Year U.S. Treasury futures, 5-Year U.S. Treasury futures, 10-year U.S. Treasury futures, 30-Year U.S. Treasury futures and Ultra long U.S. Treasury futures, weighted to closely match the Options Adjusted Duration (OAD) profile of the Bloomberg U.S. Corporate Investment Grade Index.

The resulting index effectively isolates the credit risk of the index by removing interest rate risk, as represented by U.S. Treasury futures, from the benchmark. 

Full methodology for Duration Hedged Indices can be found via Bloomberg.⁵

Final settlement will occur on the third Wednesday of the contract’s delivery month, with the last trade date falling on the business day before the final settlement date. The closing index value on the last trade date, which is calculated at 4:00 p.m. ET, is thus the value used in the calculation of the contract’s final settlement.  

The previous four quarterly month index values are shown in Figure 5 below. Note that all three of the indices underlying Credit futures settle to four decimal places. Furthermore, for the purposes of calculating the index, constituent securities are priced on the bid side.

Each contract will have its own dollar multiplier used for final settlement, which is used to derive a final settlement price for the contract: 

• $30 x the index value for the Bloomberg U.S. Corporate Investment Grade Index
• $150 x the index value for the Bloomberg U.S. Corporate High Yield Very Liquid Index
• $500 x the index value for the Bloomberg U.S. Corporate Investment Grade Duration Hedged Index

Note that these multipliers were chosen such that the notional value of each contract (which is equal to the product of the multiplier and the underlying index value) is approximately equal to $100,000 at launch. Figures 2, 3 and 4 demonstrate that the index value tends to increase over the long term for each of these indices, since they are total return indices. As a result, the notional values of the futures contracts will also tend to grow over the long term.

Hypothetical contract final settlement prices based on previous final settlement index values are included in Figure 6.

All three contracts will have calendar spread trading enabled. Buying/selling a spread means buying/selling the nearby contract month and selling/buying the deferred contract month. Note that the minimum price increment for the calendar spread is narrower than the tick size for outright markets and differs by contract. The reduced tick sizes for spread trades are below: 

• 0.25 basis points for the Bloomberg U.S. Corporate Investment Grade Index futures
• 0.05 basis points for the Bloomberg U.S. Corporate High Yield Very Liquid Index futures 
• 0.025 basis points for the Bloomberg U.S. Corporate Investment Grade Duration Hedged Index futures

The IQB futures contract will have ICS trading enabled between it and the U.S. Treasury Note futures (6 ½ to 8-Year) contract (Globex Code: ZN; Bloomberg Terminal Code: TY). The reduced tick size for ICS trading is the same as above. ICS block trades are permitted provided that each leg of the spread meets the smaller of the threshold requirements for the underlying product.

CME Group will offer margin offsets with other CME-cleared products where possible. While specific figures are still under review, initial analysis suggests margin credits of up to 75% between IQB and the U.S. Treasury Note futures (6 ½ to 8-year) contract, as well as credits of up to 65% between HYB and E-mini S&P 500 futures contacts (Globex Code: ES; Bloomberg Terminal Code: ESA) as well as between IQB and ES.

1. Pending all relevant regulatory review periods
2. Moody’s ratings scale / S&P’s rating scale / Fitch’s rating scale
3. See The U.S. High Yield Market: Characteristics of the BBG HY Very Liquid Index (VLI)
4. Source is Bloomberg data
5. See Bloomberg Mirror Futures and Duration Hedged Indices and US Corporate: Mirror Future and Duration Hedged Indices