Markit is launching a new independent service that aims to help U.S. mutual funds and other institutional investors more effectively estimate a bond's price outside active trading hours.
The new service, Markit Fair Value, is designed to help funds comply with the Investment Company Act, under which they must calculate their net asset value using the "fair value" of securities when a market quotation is not readily available, such as when a security's primary market is closed.
The methodology uses the statistical relationship between bond prices and over 30 different market, entity-specific and momentum factors to adjust value at the individual bond level.
"Markit Fair Value helps clients to address the challenge of valuing assets after the close of local markets," commented Matthew Berry, director of valuations at Markit.
"For mutual funds, this is a daily challenge that becomes most pronounced when market-moving events occur but markets are closed. On Columbus Day, for example, the U.S equity market rallied three percent, but the bond market was closed, which forced mutual funds to estimate the fair value of their US bonds," he added.