Aside from typical bonds, how can we get exposure to fixed income? Meet our S&P/BM&F One-Day Interbank Deposit 3Y Futures Index, which provides exposure to the Brazilian DI rate using futures.
The index is designed to measure the performance of a hypothetical portfolio holding a three-year One-Day Interbank Deposit (DI) Futures Contract. The DI contract is on the Brazilian one-day interbank rate, which is used by Brazilian banks to lend and borrow from each other. The contract’s objective is to provide a way to hedge for or speculate on short-term Brazilian interest rates. The index is constructed from futures contracts and includes a provision for the replacement of the index futures contract (also referred to as “rolling”). This replacement occurs over a one-day rolling period every six months, which is on the second-to-last business day of the month in December and June (also known as the rolling date). The index is designed for use by institutional investment managers, mutual fund managers, professional advisors, and insurance companies.
- What are some key benefits of the S&P/BM&F One-Day Interbank Deposit 3Y Futures Index?
The index offers a benchmark for financial institutions to measure the return on their holdings and can serve as the base of an investment vehicle, as the index is easy to replicate. The futures market in Brazil, especially DI futures, is highly liquid, making the index easier to replicate than the underlying bonds. Since the index is based on futures, it is calculated in total return and excess return versions. Also, it is calculated in U.S. dollars, which makes it accessible outside of Brazil.
The excess return index includes the price return and roll yield, while the total return version incorporates the assumption of collateral being reinvested at the overnight rate.
- How can the S&P/BM&F One-Day Interbank Deposit 3Y Futures Index benefit market participants in Brazil?
First of all, working with our partner B3 brings transparency to the local market on the exposure to the DI rate that is close to three years. This index provides the opportunity for a local fixed income investment vehicle in the Brazilian market that would provide diversification and could be used to gain core fixed income exposure or to hedge current positions. When comparing the risk/return profile with other local indices, the S&P/BM&F One-Day Interbank Deposit 3Y Futures Index significantly outperformed.
