February 2025
Fixed Income Monthly Report
Chris Edmonds
President, Fixed Income & Data Services
ICE
Addressing the biggest risks in mortgage markets: a new approach
The changing nature of risk in financial markets - such as skyrocketing insurance premiums in parts of the country - means risk management lies at the heart of some of the biggest questions for investors today. For example: how does U.S. home affordability change over time in specific locations, given shifting insurance and tax costs? What does this mean for the collateral in a home? How can asset managers get timely, precise data on the impact of climate hazards?
To shed light on these questions, we apply unique data, technology and analytics. Take mortgages: currently, the disclosures for mortgage pools tend to have standardized facts on each loan - such as loan balance, FICO score, loan-to-value ratio, and borrower debt-to-income ratio. When this data is aggregated, there is often little to distinguish one mortgage pool from another; many have a moderate loan balance, are nationally diversified and have mid-range FICO scores. To provide fresh insight, ICE applies a depth and breadth of data from our acquisitions of Ellie Mae, Black Knight, and our climate and geospatial data - all of which are integrated, using our privacy-enhanced technology, to provide signals about security risks in a way that was never before possible.
This allows us to provide transparency on metrics like how loan collateral changes over time, reflecting local sales data, shifting tax rates, utility costs, and insurance rates. It means asset managers can mark these loans to market in a far more precise way. And by linking more detailed data to individual securities, we provide value for capital markets participants.
These analytics can also drive alpha generation. When more granular data about home affordability is fed into prepayment models, it can result in a better estimate on prepayment data and more precise pricing of the securities. Supporting both alpha generation and risk management, our Housing Affordability Analytics will be the first MBS product to include detailed and timely hazard insurance costs, with an estimate of total housing costs and how they compare with average local income levels. Similarly, our Home Price Dynamics provide a timely view on loan-to-value ratios, home appreciation and tappable equity levels for MBS. Here, our data applies property and ZIP-level home value estimates, a significant improvement on state- or metro-level data used by peers.
Alongside these loan insights, the rising frequency and severity of climate risks is affecting a growing number of securities. To address this, our Hazard Watch tool allows municipal bond participants to assess exposure to extreme weather events in near real-time - with metrics that include exposed populations, estimated value of buildings and CUSIP counts. During the LA wildfires for example, Hazard Watch showed key insurance, mortgage and corporate exposures. From an insurance perspective, it showed the number of homes in the direct path of the fires, and their underlying value. For mortgage data, users could see active mortgages on exposed properties and estimates of aggregate outstanding mortgage debt - including which were GSE loans or GNMA and private-label securitizations. For corporates, the tool showed which industry sectors were most affected in the impacted areas.
Our mission has always been to provide the data, technology and expertise to drive greater market transparency. I look forward to seeing how this dynamic unfolds across the mortgage and fixed income sectors, as participants unlock new insights with our tools.
Property value-at-risk estimates above are based on ICE Climate’s property-level physical risk modeling for wildfire. A ‘100-year’ return period signifies a 1% chance of a wildfire event happening in any given year that is large enough to cause the estimated percentage of property losses. The map also shows exposure that critical infrastructure such as electrical utility transmission lines have to the LA fires; this data is sourced from DHS Homeland Infrastructure Foundation-Level Data.
Municipalities and climate risk: could a credit downgrade be worth it?
Building climate mitigation infrastructure to protect against climate risks is projected to require U.S. towns and cities to issue hundreds of billions in new municipal bonds in coming decades. Sharply increasing debt levels raises the risk of credit rating downgrades for these communities, but as this ICE Climate analysis demonstrates, the higher debt service costs associated with a downgrade may still outweigh the disaster-related costs of not spending to protect against climate risks.
Sustainable Bond Analysis: $1 trillion in issuance sets new annual record
Our Sustainable Bond Analysis examines key trends across geographies and bond types, with ICE data showing a 20% year-on-year issuance increase for 2024. While green bonds continue to dominate, transition bonds showed the largest annual percentage increase, with social bond issuance still below its 2021 peak. Europe, Middle East and Africa (EMEA) still account for the largest share of issuance at 41%, but Asia-Pacific (APAC) issuance continues to grow and represented 30% of overall issuance in 2024.
ICE Bonds sees record trading for corporate, municipal and agency bonds
Increased use of ICE Bonds’ corporate bond sweeps protocol and the expansion of its global liquidity network of traders and portfolio managers drove record trading volume for corporate, municipal and agency bonds on its platform last year.
The next evolution in indexing
Varun Pawar, ICE Fixed Income & Data Services’ Chief Product Officer, spoke with The DESK about the latest trends in funds management - such as younger investors automatically gravitating towards ETFs over mutual funds - the use of AI, and how index providers are keeping pace with growing demand for customization.
Regulatory Corner
We are introducing this section to highlight relevant regulatory updates in the financial markets
- SEC Rule 13f-2 and Form SHO: The SEC recently delayed its short selling activity reporting from February 2025 to February 2026 (Press Release), a much-awaited deferment that the industry wanted to appropriately build out their operational compliance workflows and address remaining interpretive questions.
- IOSCO Liquidity Guidance for Open-Ended Funds: Comments were due in early February on IOSCO’s November 2024 recommendations for liquidity risk management (Consultation Report).
ICE: boosting transparency across global markets
At ICE, our mission is to enhance market access and transparency. By applying our data, technology and expertise, we’re building the trust in our markets that has made us the world’s largest exchange for energy trading. That same technology drives our fixed income pricing and mortgage platform, making the home buying process faster and simpler.
Watch our latest video to learn more.
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