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ICE Fixed Income Monthly
December 2022

ICE Fixed Income Monthly Report

In this edition, the year ahead: our President of Fixed Income & Data Services Amanda Hindlian shares what she’ll be watching for MBS markets, munis and indices. We analyze impact bond activity, and ICE’s Long Gilt futures mark 40 years as a benchmark for U.K. sovereign bond markets.

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Amanda Hindlian
Amanda Hindlian
President, Fixed Income & Data Services

ICE

As you know, it has been a volatile year for markets. The pace and magnitude of Fed action in response to inflationary pressures, coupled with fallout from the war in Ukraine, made it a challenging year for most major asset classes.

From an economic standpoint, the question is “what’s next?” One area I’ve tracked as an economic bellwether is mortgages and mortgage-backed securities (MBS) given their status as the second largest segment of the U.S. fixed income market, and because the housing market’s response to the Fed is typically speedy. When people believe their homes are worth more, or at a minimum holding value, it fuels consumer spending and confidence -- and vice versa. One benefit homeowners enjoyed from record levels of Fed support in MBS markets was very low mortgage rates. As seen in the charts below, this allowed most homeowners to refinance or take out mortgages with rates at or below 4%.

Now MBS markets are undergoing a substantial shift. Of the 25% of mortgage borrowers currently paying above 4%, our data shows that a disproportionate number are economically vulnerable -- such as living in high poverty areas with less access to credit. If we fall into a recession, as many now expect, these borrowers who are already facing relatively higher mortgage payments, and more expensive daily living from inflation, may have little buffer to weather an economic storm.

Against this backdrop, investors often ask us how they can direct their capital to have an outsized positive impact in our world. And demand for investments that target environmental, social and governance (ESG) concerns is rising. By using newer metrics like the ICE Social Impact Score, investors can seek to help less affluent communities. In addition to mortgage backed securities, our analytics can be applied to municipal bond investments, with the potential to pursue strategies such as identifying school districts, where fresh capital infusions could lead to better educational outcomes in disadvantaged communities. And interestingly, studies on this subject suggest that school capital investment also supports more robust local housing markets, creating a virtuous cycle.

ESG investing has emerged as a clear theme for our index business as well. Bond managers can now benchmark to indices aligned with Paris Climate Agreement targets, while asset classes like carbon are emerging via ETF launches across Asia-Pacific. Other ETF/ fund trends we’re seeing include a preference for income-focused products like high dividend equity funds -- particularly in Europe and Asia -- and we expect growth in fixed income funds as rates continue to rise.

As 2023 begins, Fixed Income and Data Services at ICE is focused on supporting our clients across these and other areas. And as economic and market conditions evolve and impact our clients, so too will we.

We wish you a happy and healthy holiday season and a great start to the New Year. It may not be an easy one, but hopefully it is at least an interesting year.

Outstanding US Mortgage Note Rates

Asset Class Performance 2022 YTD Total Return

Source: ICE Data Services


Elsewhere in bond markets

Finding Needles in the Bond Market Haystack

A confluence of factors, ranging from inflation to war, have come together in 2022 to spark sharp asset price falls and historically poor year to date performance in bond markets. Coupled with a volatile trading environment these underscore the need for faster decision making, closer oversight, and more efficient investment analysis. Access to high quality data can be critical for success.

Read more

ICE’s Long Gilt futures: 40 years as a benchmark for U.K. sovereign bond markets

In the three hundred-plus years since King William III issued the first gilts, it’s a point of pride for the United Kingdom that not a single payment has been missed. Gilts’ reputation as a safe-haven, highly liquid asset is globally renowned. Here at ICE, we are equally proud of our gilt futures, which on November 18, 2022, celebrate their 40th anniversary of trading.

Read more

Q3 Impact Bond Analysis

The percentage of impact bonds certified by a third party hit 87% globally in Q1-Q3 2022 up from 84% last year, amid growing regulatory oversight fueled by concerns of ‘greenwashing’. While Europe, the Middle East and Africa (EMEA) still have the highest certification rate, certification jumped from 68% to 85% in the Americas, and from 83% to 87% in the Asia-Pacific region.

Read more

Webinar: Creating Custom Indices

ICE’s Custom Index Tool provides clients with an easy-to-use, web-based solution to create and backtest custom indices and strategies. Join us for a webinar as we demonstrate our Custom Index Tool.

Topics include:

  • ICE Index Platform Overview – Summary of all available analytical tools that help clients to perform historical research, daily production tasks and overall index data tracking
  • Profile Analysis Tool – Slice and dice any index, including any custom indices, in up to three segments and view results
  • Custom Index Builder – create simple or complex custom indices that can be shared across colleagues and view results within all tools of the Platform
  • ESG Custom Index Tools – create custom indices using ESG filters from Sustainalytics or MSCI data

Register here

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