What Is Dow Jones Corporate Bond Index?

The Dow Jones Corporate Bond Index is a "basket" or group of bonds that provide investors a way to study these particular investments. Unlike stocks, which give ownership in a company, bonds represent a promise to repay borrowed money, usually with interest. The objective of the Dow Jones Corporate Bond Index is to track the total market return of high-quality bonds from U.S. companies.

Selection Criteria

The bonds selected for the Dow Jones Corporate Bond Index include only U.S. corporate bonds that are easily bought and sold. They must not be callable, meaning the issuing company can't buy them back before maturity. They must have an investment-grade rating from Standard & Poor's or Moody's Investors Service.

Groups and Weighting

The 96 bonds in the corporate bond index are divided into four maturity groups or cells of 24 bonds each. These cells contain bonds clustering around maturities of two years, five years, 10 years and 30 years. The bonds come from the utility, financial and industrial sectors of the economy. The index always contains 48 industrial bonds, 36 financial bonds and 12 utilities, totaling 96. The bonds are equally weighted, meaning that each bond has the same effect on index pricing.

Uses

The Dow Jones Corporate Bond Index helps investors observe the day-to-day changes in the total return of the types of bonds in the index. Total bond return includes both interest payments and increases or decreases in bond prices. The index also allows investors to study changes in the value of this basket over a longer term. Historical data begin on Nov. 27, 2006, when Dow Jones started the index, and calculated data are available back to Dec. 31,1996.

Changes

The index management reviews the list of bonds for possible changes every month, starting a minimum of five business days before the end of the month. Criteria for adding or removing bonds from the index include the amount of bonds outstanding, maturity dates and changes in company credit ratings. The company announces changes in the components of the index before the month's end.

Price

The Dow Jones Corporate Bond Index uses the symbol DJCBP and is priced every day in U.S. dollars. The base value for the fund is 100, the value assigned for Dec. 31,1996 through back calculation. The daily price for the index is reported on financial websites, including Yahoo! Finance, "Barron's" and MSN Money.