GPW Benchmark has launched the first two indices covering Poland’s corporate bond market: WIPID, which tracks the broad market for corporate bonds and covered bonds listed on Catalyst, and POLCBF, which focuses on debt securities issued by financial institutions.
The indices are intended to make it easier to assess market conditions, increase transparency and ultimately attract more investors. They are the first component of the newly launched Corporate Bond Market Monitoring System, which is also expected to encourage more companies to consider raising capital through bond issues over the longer term.
The Corporate Bond Market Monitoring System is designed to improve the transparency of information on activity in the non-government debt securities market. The new service includes the publication of two indices: the Warsaw Public Debt Instruments Index and the Poland Corporate Bond Financials Index.
“We associate the security of both institutional and individual investors primarily with access to information. Trust in the market is not merely an emotional issue; it is also based on knowledge. We want to improve investors’ understanding of what they can invest in, which instruments are available and how the market’s performance compares with other segments of the financial market,” Aleksandra Bluj, President of GPW Benchmark, told the Newseria news agency.
“The Corporate Bond Market Monitoring System consists not only of indices but also of an information and metadata system covering corporate bonds and covered bonds,” she added.
The system is updated monthly. It includes daily index values, information about the composition of index portfolios and selected market data relating to individual bond issues.
“What we cannot measure is difficult to analyse effectively,” said Konrad Jankowski, Senior Analyst at GPW Benchmark. “The new indices make it possible to monitor the entire market, rather than only individual issues, in a simple, transparent and objective manner. Investors gain a tool for evaluating the performance of their portfolios, while issuers receive insight into financing conditions.”
WIPID Tracks the Broad Catalyst Market
The first of the new indicators is the Warsaw Public Debt Instruments Index, known as WIPID. It reflects developments in the market for corporate bonds and covered bonds listed on Catalyst.
Securities with the lowest levels of trading activity will not be included in the index portfolio.
The second index is the Poland Corporate Bond Financials Index, or POLCBF. It was developed by GPW Benchmark at the request of TFI PZU, which owns the methodology.
POLCBF covers corporate bonds and covered bonds issued by financial institutions. Its portfolio may also include privately placed bond issues.
“Alongside WIPID, POLCBF forms the initial core of the index family being developed for the Monitoring System. It is dedicated to the financial segment, meaning debt securities issued by financial institutions. This enables us to observe how this particular part of the market changes over time,” Jankowski explained.
Indices Use Both On-Exchange and Over-the-Counter Data
The indices are calculated using information on transactions conducted both on the Catalyst market and outside the organised market.
This is intended to provide a more complete picture of bond prices, as a significant proportion of corporate bond market activity takes place over the counter rather than on an organised trading platform.
“Using data from both markets provides a more comprehensive view of prices than relying on a single source,” Jankowski said.
“The new indices increase transparency and provide tools for measuring risk. We also hope they will be used as benchmarks for bond funds,” he added.
Market representatives expect greater transparency to increase interest in corporate bonds. The launch of the system will not automatically result in an inflow of capital, but it creates infrastructure that could support the development of new investment products in the future.
New Indices Could Support Passive Investment Products
“Globally, we are seeing growing interest in passive and index-based investing. Greater transparency may encourage investors to become more familiar with a market that is currently less widely understood than the equity or government bond markets,” Bluj said.
“We hope to see the development of exchange-traded funds and investment funds that will allow ordinary retail investors to invest in assets that are easier to recognise and compare,” she added.
One of the first effects of the new indices could be a change in the benchmarks used by existing corporate bond funds.
Some funds currently compare their performance with money-market indicators such as WIBOR or WIBID. However, these rates do not directly reflect developments in the corporate debt market.
Existing corporate bond funds may therefore be among the first institutions to adopt the new indices. Further investment products are likely to be developed only after the market has assessed how the indices perform and whether conditions in the secondary market improve.
“We must first determine whether the indices genuinely support the market and whether liquidity increases. This will be crucial for the creation of new products,” said Jarosław Leśniczak, Vice-President of TFI PZU.
“Corporate bond funds often use WIBOR or WIBID, so a process of transitioning to the new indices is likely to begin. However, we will have to wait before further products can be developed and observe how the secondary market evolves,” he added.
Low Liquidity Remains the Market’s Main Weakness
Greater transparency could be particularly important for the development of the secondary market. The limited ability to sell bonds before maturity means that some investors remain committed to their investment decisions for several years.
According to the TFI PZU representative, the new indices could help develop secondary-market trading and make investment performance easier to compare.
“The main weakness of the Polish corporate bond market is its low liquidity, meaning the small number of transactions conducted on the secondary market,” Leśniczak said.
“When there are few transactions, it is often difficult to determine the true price of a particular instrument. Smaller investors, in particular, may be uncertain about its value. An index can support liquidity, increase market transparency and make performance more measurable and comparable,” he explained.
“In our view, this is a milestone in the development of Poland’s corporate bond market.”
Over the longer term, growing demand for corporate bonds is expected to encourage more companies to raise financing through debt issuance.
