Nasdaq has operated a regulated market for bonds and bills in Iceland since 1986. Throughout this period it has endeavored to increase the efficiency of this market by steadily improving both the technical framework and trading options.
The transparency of the Icelandic market is among the best of any international fixed income market, since on-exchange trading comprises nearly half of aggregate bond and bill trading. In the first quarter of 2012, the share of on-exchange trading was 60%. The high proportion of on-exchange trading is likely attributed to the active market making for benchmark classes, which keeps their liquidity high.
The majority of listed classes are indexed: 86% of the total number, but only 58% of the total market value. Trading in the benchmark classes, which are primarily Treasury notes (RIKB) and Housing Financing Fund bonds (HFF), comprised an overwhelming majority (98%) of total bond market trading in the first quarter of 2012, or the equivalent of ISK 882B. The average daily turnover in the first quarter of 2012 was ISK 13.9B, compared to a daily average of ISK 10.3B in 2011.
The interest rate level in Iceland in the first quarter of 2012 can still be regarded as high by international comparison, since the 3M nominal rate averaged 3.9 %, the 1Y rate averaged 3.9%, 5Y rate 6.0% and the 10Y rate 7.2%. The 5Y real interest rate averaged 1.1% and the 10Y rate 2.2%.
Icelandic Fixed Income Market
The Icelandic fixed income main market consists of two sub-markets:
- OMX ICE CP Fixed Income
- OMX ICE DP Fixed Income
Nasdaq Iceland also operates the First North Iceland Fixed Income market which is an MTF aimed at issuers who do not prepare their accounts according to International Financial Reporting Standards (IFRS).
Icelandic Fixed Income Indexes
In order to facilitate the comparison of interest rate levels and market value, Nasdaq Iceland calculates six fixed income market indexes for benchmark classes. All of them are measured by total return with a fixed duration.
- 3M OMXI3MNI
- 1Y OMXI1YNI
- 5Y OMXI5YNI
- 10Y OMXI10NI
- 5Y OMXI5YNI
- 10Y OMXI10YI