S&P to launch three CDS indexes

Standard & Poor’s will launch three US-based credit default swap (CDS) indexes in the first quarter of 2008.

The index provider will offer two forms of CDS indexes that reflect the performance of a basket of single-name credit default swaps. The first type of index will incorporate all credit events that have occurred into its pricing, while the other will effectively remove the relevant credit from a given index when a credit event occurs.

“The S&P US CDS indexes are designed to be liquid and efficient enough to support investment products such as index funds, index portfolios and derivatives,” said David Blitzer, chairman of the index committee at Standard & Poor’s. “We expect a good amount of interest in these indexes both by institutional investors and dealers alike.”

New series of indexes will be generated every six months to maintain sufficient liquidity and to accurately reflect changes in the credit market. Standard & Poor’s is using CMA DataVision, the credit information provider, as its primary source of pricing for the indexes.

The S&P US Investment Grade CDS Index will consist of 100 equally weighted investment-grade US corporate credits, while the S&P US High Yield CDS Index will comprise 80 equally weighted high-yield US corporate credits. The S&P 100 CDS Index will be composed of the 80-90 members of the S&P 100 Equity Index that have CDS with sufficient liquidity. The weight of each constituent in the 100 CDS Index will correspond to its weight in the 100 Equity Index.

See also:
Deutsche launches Asian currency-correlation indexes
JP Morgan unveils new multi-commodity index