Bond Index

The fixed income market in India does not have a standard methodology to measure the performance of the market. Typically, the daily changes in the call rates and their effect on the prices of the securities determine the market movements. The Government of India (GOI) Bond Index system has been developed to arrive at a standard measure of the government bond market and its movement.

The GOI bond index is a real number that measures the performance of a portfolio that is invested purely in government bonds. The system would help institutions and market participants of the Wholesale Debt Market value their holding in sovereign papers.

1. Create a portfolio of government bonds.

2. Find a set of weights for each bond proportional to the market cap of each bond.

3. Calculate the number of bonds that the index fund would have to be holding to be invested in the index portfolio.

4. Calculate the cashflow of each bond in the portfolio.

5. Calculate the price of each bond in the portfolio.

6. Calculates the index value.

Besides the standard features above, the system also calculates:

1. Yield to Maturity (YTM) of each bond in the portfolio.

2. Bond duration and adjusted duration.

3. Bond convexity.