On Jan. 14, Bloomberg Barclays changed the time it closes the pricing of its indices from 3 p.m. to 4 p.m. ET. This move affects all USD-denominated indices, including the US Aggregate, Long Government/Credit, US High Yield, and US TIPS.
There are several parties affected by the timing change. Asset owners, investment managers, custodians, and pricing vendors may experience discrepancies in reporting point-in-time pricing or performance as a result of the change. The discrepancy arises if an investment manager has moved to Bloomberg Barclays’ new 4 p.m. pricing convention, while its client’s custodian continues to strike closing prices at 3 p.m.
At face value an hour may appear negligible, but it can considerably impact Bloomberg Barclays-benchmarked strategies with a greater sensitivity to changes in interest rates. Also, investment managers that provide overlay strategies can experience a significant price differential over the course of that hour. For instance, on Feb. 26 between 3 and 4 p.m., yields on the 30-year Treasury declined just over 7 basis points, which resulted in meaningful price moves for Long Duration strategies. A 7 bps move in rates may equate to roughly a 1.05% move in price for a 15-year duration security, which could create headaches for plan sponsors tracking funded status.
Pricing vendors are the source of pricing to custodians; some of the main suppliers include ICE, Reuters, IDC, Refinitiv, and Bloomberg. Callan recommends that asset owners check in with their custodians to verify if their pricing vendors have moved to the new 4 p.m. convention. If custodian banks and pricing vendors are able to recalibrate to a 4 p.m. close, it would help manage against discrepancies in reporting. And while the reporting discrepancy should wash out over time, we reiterate it can result in a difference in performance relative to the benchmark for a given month or quarter, which may be a concern for investors with end-point sensitivity.
Callan expects custodians will work with pricing vendors to address this issue, but also expects challenges in addressing the operational synchronization required.
