Guide to Bond Indices

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:

1. Emerging Markets Bond Index for emerging markets.
2. Lehman Aggregate Bond Index for trading bonds in the US.
3. Merrill Lynch High Yield Master II Index for high-yield corporate bonds

Action Steps
The best contacts and resources to help you get it done

Use the Emerging Markets Bond Index for investments in emerging markets

The 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.

I recommend: Scottrade allows you to purchase regional bond indexes funds or ETFs. You'll get essential information on this revenue bond index. For one, the bond index charts enable you to see time range, upper and lower indicators, and volume. If there are other regional bond indexes that interest you, TradeKing offers you opportunities to purchase ETFs in extended hours.

Use the Lehman Aggregate Bond Index for trading bonds in the US

Lehman 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.

I recommend: You can purchase iShares through Barclays to take advantage of the Lehman Aggregate Bond Index. You can view the top holdings, along with the top sectors that make up the bond index. Check State Street SPDRs. This firm sells regional bond indexes funds or ETFs. You’ll have to enroll for this service in order to get information about these revenue bond indexes.

Use the Merrill Lynch High Yield Master II Revenue Bond Index for high-yield corporate bonds

This 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.

I recommend: Harbor Funds Distributors Inc. has the High-Yield Bond Fund that mirrors the Merrill Lynch High Yield Master II Index. Harbor Funds provides bond index charts. Summit Mutual Funds also has a Summit High Yield Bond Fund-I that invests in high-yield bonds; gain information about how assets are allocated in equity, fixed income, or cash investments.

Tips & Tactics
Helpful advice for making the most of this Guide

• Increase your bond index portfolio with tax-free municipal bonds if you're concerned about paying high taxes on your investments.

The official source of Bond Indices is the Bond Indices page at Business.com