Deutsche Bank has launched a new proprietary index, dbMAST, linked to the USD 2 trillion US Municipal Market.
Deutsche Bank has launched a new proprietary index, dbMAST, linked to the USD 2 trillion US Municipal Market. Carlos Rodriguez, Head of Municipal Derivatives in the US, said: ‘db MAST offers clients the opportunity to generate alpha from the US municipal market via an innovative indexing solution presenting European and Asian investors with an exciting alternative to their traditional fixed income markets.’
The dbMAST Index, the latest in the line of Deutsche Bank’s institutional fixed income research models, offers institutional investors access to the structural premium that arises from supply and demand mismatches in the US municipal curve and expected future US tax rates.
The dbMAST Index aims to extract the arbitrage value by leveraging the inefficiencies that exist due to the issuers’ preference for long term financing and investors demand for US Tax exempt municipal bonds at shorter maturities. Research indicates that this excess demand in the shorter maturities causes the municipal curve to slope upwards and to deviate from the theoretical municipal curve which is a function of the libor curve and expected future tax rates which creates the structural premium.
Bhupinder Singh, Head of Structured Rates Products, Europe & Asia adds ‘Deutsche Bank’s ability to take a local strategy and turn it into a globally accepted product illustrates our ability integrate our trading, structuring and distribution groups into an efficient global platform that creates value added investment strategies for our clients.’
The dbMAST Index exhibits a low correlation to other asset classes and because the strategy has been constructed using a long / short combination of interest rate underlyings, the index also has a low correlation to bonds making it a compelling alternative to traditional fixed income investments. Furthermore the Index is entirely quantitative, driven by research, and involves no subjectivity.
Investors can gain access to the index via Funds, notes, certificates and OTC derivatives or by a number of different wrappers and is available in both principle protected and leveraged formats.
