Paul: [00:00:00] Welcome to Index Ideas from FTSE Russell. I'm Paul Amery, your podcast host. In this podcast we explore index ideas that can help you address real-world investment challenges. The concepts that we discuss in this podcast are not investment advice. They represent transparent, systematic approaches that may be developed into indices and made available for broad public use. So any reference to potential strategies is for informational and educational purposes only.
In this episode of Index Ideas, I'm joined by Robin Marshall, who is director of fixed income research at FTSE Russell. Robin has joined the podcast to talk about one of our most popular and historic index series, the FTSE World Government Bond index, commonly referred to as “FTSE WGBI”. Robin, welcome to Index Ideas.
Robin: [00:00:45] Thank you very much, Paul.
Paul: [00:00:47] So in January, WGBI is celebrating its 40th anniversary. It's changed quite a lot over the years. What's happened in terms of the number of constituents when the index was first launched and now.
Robin: [00:00:59] Yes, as you rightly say, it started with only nine constituents back in the early 80s, and we've now grown that to 24 by 2025. So a substantial growth in the number of constituents and some changes too in the underlying composition of the index, as you would expect.
Paul: [00:01:23] So bond indices appeared later in the investment landscape than equity indices. What led the designers of the WGBI to launch it in the mid-1980s?
Robin: [00:01:33] Well, it's a good question. And I think the point was back in, it's hard to believe, but back in the early 80s, there wasn't a great deal of or there was much less overseas investment in bond markets. Investors tended to stick to their own domestic markets. But it was becoming important for investors to look at overseas markets and diversify portfolios. And that required a global standard, if you like, for a bond index to be composed and also, importantly, a benchmark, then, for performance of those international markets. And those were important drivers: having a global standard, a high global standard of consistency and then a benchmark for performance for international portfolios.
Paul: [00:02:30] And the original creators of the WGBI were Salomon Brothers, the—
very famous at the time—bond trading house that was made immortal in the book “Liar's Poker”. But their bond research team was considered the top in the world, I think, at the time, and they were the ones that popularised the index to start with.
Robin: [00:02:47] Yes, absolutely. And that relied on pricing from the Salomon Brothers market makers, as it were, which, you know, is something that's changed over time. We now have a broader pricing service that supports the index. But as you rightly say, Salomon started the index, the WGBI. Then they were taken over by Citibank/Citigroup and then subsequently FTSE Russell bought the WGBI business, as it were, in 2017. So we've been administering it in FTSE Russell since 2017.
Paul: [00:03:28] So how does FTSE Russell decide—you mentioned that the number of markets in the index has gone up quite a bit since launch, from 9 to 24 currently—how does FTSE Russell decide what goes into the WGBI and what doesn't go in?
Robin: [00:03:41] Well there's what we like to call a gold standard, if you like, a high set of requirements for country inclusion. And there are 17 different metrics across a range of variables. But market size is clearly important. The market has to be over $50 billion. It has to meet minimum credit rating criteria. It has to have high accessibility for foreign investors. So a range of metrics, 17 metrics in total, to ensure that there is full transparency and predictability in the index inclusion.
Paul: [00:04:26] And compliance or non-compliance with these metrics is something we publish every six months, I believe in our fixed income country classification report.
Robin: [00:04:34] Yes, correct. There's a March and a September update when countries are reassessed and countries can enter: a new country can enter the index or a country can leave. I mean, one or two countries like Switzerland who were in the original index in the mid-80s, they've come and gone from the index a few times because of, largely because of market size. So there is a little bit of turnover of countries. But again the criteria are fully transparent. And that's a very important part of the gold standard, if you like, to preserve the quality of the index for investors and to benchmark performance, etc.
Paul: [00:05:23] Let's talk about some of the key themes of the index’s composition, the types of markets that have made it into the index. What's changed over the 40 years since its launch? The first one I wanted to ask you about was credit rating, because in a blog that we published on the FTSE Russell website last year, “Eight Things you probably didn't know about the FTSE World Government Bond Index”, there's a very nice chart showing that the credit rating history of the index, and I noticed that at launch, I think 85% or more of the index was triple-A rated. And that's obviously changed. What's the situation like now in terms of credit rating?
Robin: [00:05:57] Yes, I think you could say, broadly speaking, that double-A is now the new triple-A, insofar as there are now, I think it's about 10% only of the index, which is triple-A rated and nearly 60% is double-A. So there's been a substantial, if you like, credit quality has declined as countries have increased debt-to-GDP ratios, issued more debt. The overall WGBI size has gone from just over a trillion to over $33 trillion in market cap size since the 80s. So in that increase in market size, a definite diminution in credit quality. You know, there's another question there about whether credit, you know, the credit ratings are complete. How have they evolved over time. Are they classified in a tougher way than they used to be. But broadly speaking, credit quality has declined and double-A now dominates the ratings.
Paul: [00:07:05] And obviously we see that there was a huge bull market in bonds starting in the early 80s, which went really up until the period of Covid, when a lot of government bond markets were trading with negative yields at the short end. Since then we've seen quite a sharp back-up in yields, and I think the three years from 2021 to 2023 were the worst three-year period in the index's history. What's happened since? Has that recent bear market put people off bonds, or are you still seeing a healthy level of inquiries from clients about WGBI and WGBI-related products?
Robin: [00:07:36] Central banks have now been slowly reducing rates. Well, the US is the slowest. But, generally speaking, the G7 has been cutting rates as inflation has fallen. So government bond market performance has improved after that grim period, as you say, 2020-2023 when rates rose sharply. But it's quite a variable picture. You know, in Europe rates have come down faster than in the US. Of course, Japan is still looking to raise rates, and although the Japanese weighting in the index is now down to under 10%, it's still an important market. China is now up to 10% of the index, having achieved full inclusion in October 2024. So China is now an important market as well and of course wasn't in the original list of countries. And yields have been falling in China as the central bank’s cut rates there. So it's a kind of mixed picture, but we've stabilised after that big sell-off from 2021-2023 that you described.
Paul: [00:08:46] And in terms of the overall duration of the index, have there been any significant changes, you know, reflecting the maturity structure of the component bond markets, any particular trends you've noticed there?
Robin: [00:08:57] Yes, I think movements in duration are quite, again--and this is the attraction of having an index that's been around so long and has been, you know, has consistent criteria and all the rest of it—when you look at the historical performance and movements in duration, you can see some important trends. When the WGBI started, the duration of the index was only just over four years. Now it’s just under seven— six and a half when I checked this morning, as of the end of September [2025], that was. But it did reach nine years at the peak in 2021. So that's a combination of interest rates, yields falling for that long period up to 2021, and also governments issuing more longer-dated bonds as they increase their issuance. And, last but not least, QE, quantitative easing programmes that came in after the GFC in 2008/9, as central banks bought government bonds: that tended to push yields down and also extend the duration of the index. So although we're not quite at the peak duration, we're still not far off: six and a half years and that compares with only four years when the index was first developed in the mid-80s.
Paul: [00:10:30] So that 40-year index history gives us a very interesting snapshot, I guess, of how the financial markets have changed because that's, you know, the bond markets sit at the centre of everything, don't they? They are the key asset class, I suppose, for global asset markets.
Robin: [00:10:44] I mean the government bond market is at the centre of the infrastructure, if you like, for pricing a whole range of asset classes, you know, because it gives you the risk, what we would loosely define as the risk-free rate, say on a ten-year or five-year bond, whichever maturity you want. But if you're benchmarking other asset classes, you want to have some means of valuing them against a risk-free rate. And an index like the WGBI gives you that, gives you, if you like, an international risk-free rate against which you can benchmark other indices. And when we look at correlations of returns, again, we can look at the WGBI, see what the returns have been like in government bonds, compare those with returns in other asset classes. So you can benchmark performance in that way for asset allocators who are looking at portfolio diversification and all those performance issues around relative asset class performance.
Paul: [00:11:56] We could carry on talking about this for a long time, Robin, I think we probably could fill an hour or two. But thank you very much for taking the time to chat to me. Before we go, I'd like you just to explain to listeners—the WGBI obviously sits at the centre of a family of indices—and there are variants that people might be interested in hearing more about. There's a lot of content on our website to explain all this, but any WGBI variants you'd like to mention that you think are of interest in this market environment?
Robin: [00:12:23] Yes. One that's become quite popular and celebrated its 10th birthday, not quite its 40th, but its 10th birthday recently was the debt capacity WGBI. Now this is the World Government Bond index, adjusted for the debt servicing capabilities, if you like, of the constituent countries. And so countries that have higher debt service costs and higher debt burdens get lower weightings. And if you look at the US weighting, for example, it's 15% lower in the debt capacity WGBI index than it is in the main, if you like, the original grandfather WGBI. Another variant which is worth mentioning are the climate WGBI, which adjust country weightings for the performance of individual countries against various green criteria, if you like, or ESG criteria. And there again, it's a global index but adjusted for the performance in those areas. So these are all important variants of the original WGBI.
Paul: [00:13:30] A story that's still fascinating and well worth following on the website and through our research papers and other insights. Robin, thank you very much for joining me. That's it for this episode. If you've enjoyed this conversation, please do follow Index Ideas and give us a positive rating or review on your podcast app of choice. If you'd like to get in touch with the show, you can do that via the email address
[email protected]. But for now from me, Paul Amery, goodbye.
