Bond indices are usually developed for monitoring performance and managing portfolios. The bond market plays a crucial role in the financial markets. Internationally, the bond market accounts for more than $40 trillion of the markets' business. The US bond market has an outstanding debt of more than $25 trillion. So if your business has a pension or 401(k) plan, you want to allocate a portion of your portfolio in bonds.
If you’re looking to invest in bonds, bond indices are good leads. You can find them on the Internet, however, in most cases, you won’t be able to trade them. Your next step then is to look for ETFs (exchange traded funds) that mirror these bond indexes, then trade these ETFs. Three bond indices you want to use are the following:
- Emerging Markets Bond Index for emerging markets.
- Lehman Aggregate Bond Index for trading bonds in the US.
- Merrill Lynch High Yield Master II Index for high-yield corporate bonds
Use the Emerging Markets Bond Index for investments in emerging marketsThe Emerging Markets Bond Index monitors the total returns for external debt instruments that have been traded in the emerging markets. J.P. Morgan created this index, which is one of the most popular bond indexes. The Emerging Markets Bond Index consists of Eurobonds, loans, and US dollar-dominated Brady bonds.
Use the Lehman Aggregate Bond Index for trading bonds in the USLehman Brothers developed and manage this index. You can purchase regional bond indexes funds or ETFs that track this index. The Lehman Aggregate Bond Index is one of the most widely-used bond indexes. It contains the following securities: mortgage-backed, asset-backed, and corporate and government. In addition, Lehman has other regional bond indices that are customized for European and Asian investors.
Use the Merrill Lynch High Yield Master II Revenue Bond Index for high-yield corporate bondsThis is one of the most-commonly used revenue bond indexes as well. Merrill Lynch manages this bond index portfolio. Other bond investment firms track the Merrill Lynch High Yield Master II Index and have their bond index portfolios tied to it. If you are looking for high-income and capital appreciation, consider looking at this index.
- Increase your bond index portfolio with tax-free municipal bonds if you're concerned about paying high taxes on your investments.