- Evolution of Bond Investing: The WGBI grew from $1.9 trillion in bonds across nine countries in 1986 to $30 trillion across 24 issuers in 2024.
- Index Innovations: FTSE Russell introduced rigorous classification methods in 2019, further enhancing the index's credibility.
- Global Impact: The WGBI remains central to global bond investing, offering insights into yield trends, credit ratings, and market opportunities.
When Wall Street trading house Salomon Brothers launched a nine-country international bond index in 1986, the news made only a small splash in the financial press.
Yet one of the firm’s researchers had an idea that index-based investing in bonds might take off in future.
“The [Salomon Brothers World Government Bond] index could be valuable for institutional investors in putting together an international bond portfolio,” Marty Leibowitz, head of Salomon’s portfolio analysis group, told journalists at UPI.
“Individuals will be able to participate through specialized mutual funds and, sometime in the future, through direct purchases,” Leibowitz went on.
At the time, investors were still recovering from the severe bond bear market of the 1970s and early 1980s.
In January 1981, amidst soaring inflation and widespread industrial unrest, the yield on the US 30-year Treasury bond had hit a record 15.2%, inflicting heavy capital losses on holders. At the launch of the WGBI, the yields in most constituent government bond markets were still in double figures.
The idea of global bond ETFs, funds which offer tradeable exposure to a range of bond markets in a single purchase, still lay more than twenty years ahead.
Even the concept of spreading bond investments around the world was relatively new in 1986. Most institutional pension funds restricted their fixed income investments to those available in the domestic market. Meanwhile, fund ratings firm Morningstar only launched a global bond mutual fund category in 1988—there weren’t enough international bond funds before then to justify it.
The rest, as they say, is history, and it’s been a productive and rich history, as Leibowitz astutely foresaw.
Since 2017, FTSE Russell has been the owner and administrator of the World Government Bond Index (now called the FTSE WGBI), which is now a global standard in portfolio construction, investment analysis and risk management.
In a new publication to mark the fortieth anniversary of the index’s history (which dates from 31 December 1984), we show how the WGBI has expanded hugely, both in terms of the countries it includes and the market value of the bonds it tracks.
At inception, the WGBI contained around $1.9trn in bonds (at face value) from nine government issuers. Now, in late 2024, the index contains around $30trn in bonds from 24 issuers (and it is scheduled to admit a 25th market, South Korea, in 2025).
WGBI market value 1985–2024 (US$ billions)
Source: FTSE Russell, data from January 1985-September 2024. Please see the end for important legal disclosures.
In the report, we describe the rigorous new fixed income country classification process introduced by FTSE Russell in 2019 and explain, step by step, how the index is built.
We look at the index’s yield and credit rating history, its currency exposures and duration over the past 40 years of WGBI’s existence. That period covers the incredible bond bull market of the disinflationary 1990s and 2000s, followed by the recent rise in yields in response to the sharp post-Covid jump in inflation and interest rates.
We show how the responsibility for bond index management has largely moved from investment banks to specialist index providers, with a parallel shift in the way bond prices are sourced.
We explain how the index continues to serve the needs of professional investors and who oversees the WGBI and any changes to its methodology.
As well as serving as a benchmark for the global government bond opportunity set, the FTSE WGBI now sits at the centre of an ecosystem of bond indices, with specialist offshoots covering sustainability, debt capacity and regional investor requirements.
Over four decades, the FTSE World Government Bond index has witnessed several global interest rate cycles, a steady increase in the number of its constituent markets and the further specialisation of index-based investing in bonds. Whatever the future holds for the world’s fixed income markets, the WGBI will be there to record it.
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