Comparing bond index funds: how do indexed bond funds assign the weights to their constituent investment components?

Question

How do passively managed indexed bond funds assign the different weights to their constituent investments?

Is a bond index fund, similarly to stock indexes, trying to hold a slice of all existing outstanding bonds out there (subject to eligibility criteria)?

The bonds included in the index are probably determined according to some ranking metric. Then, afterwards, what is it that determines how much face value amount is invested in a particular issue that made the cut? What's the equivalent of the "market cap" from the stock market, in the bonds world?

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In case this question can only be answered with specifics, I'm asking this to better understand how to compare the performance of two bond funds on the Toronto Stock Exchange (TSX).

1. iShares XQB (High Quality Canadian Bond Index ETF) seeks to replicate the FTSE Canada Liquid Universe Capped Bond Index, net of expenses.

2. Horizons HBB (Cdn Select Universe Bond ETF) seeks to replicate the Solactive Canadian Select Universe Bond Index (Total Return), net of expenses.

Answer 1

Both are weighted by the bond equivalent of "market cap", meaning the total par amount of bonds outstanding times the price:

FTSE Statement of Principles:

Security Weighting and Index Contribution: Unless otherwise specified in the index Methodology Documentation, constituent securities of FTSE fixed income indices should be weighted by the current par amount outstanding of each constituent security, multiplied by its price, inclusive of accrued interest, reflecting a market value weighting approach.

Solactive Index Guideline:

In the Corporate Universe, all bonds are weighted according to their respective Market Value in proportion to the aggregated Market Value of all Corporate Universe components.

where

“MARKET VALUE” of a bond is defined as the sum of the Last Evaluated Price and Accrued Interest multiplied by the Amount Outstanding.

Like a stock fund which is weighted by market cap instead of price, the relative par amount of bonds (akin to number of shares) within the fund remains constant, and the price of the bond moving up or down automatically rebalances the fund by "market value".