Deutsche launches Cristals credit index note

Deutsche Bank has launched a five-year index-linked credit note. The underlying index for the new security will be the euro corporates overall index provided by iBoxx – the credit index consortium.

The new product, called corporate index super-transparent and liquid securities (Cristals), is linked to the total return of the iBoxx euro-denominated corporate bond index, which contains around 440 bonds from more than 200 issuers with an average rating of single-A.

"We believe the particular structure we have opted for has a number of appealing features for our investors,” said Michele Faissola, London-based global head of over-the-counter derivatives at Deutsche Bank. The market and credit risk on such index credit products is typically managed on the dealer’s OTC book with index swaps, interest rate and credit derivatives, and cash bonds.

Deutsche’s approach to portfolio credit investment products is in contrast to that of its competitors such as JP Morgan Chase, Morgan Stanley and Lehman Brothers – all of which have opted to market proprietary products. For example, JP Morgan Chase launched its five-year European Credit Index-Linked Security (Jeci) – a five-year product backed by credit default swaps – back in March.

Speaking to Risk earlier this year (Risk May 2002, page 6), Fergus Lynch, London-based head of index development at Deutsche Bank, said: “Proprietary products are fine, but the credit portfolio market can only really take off with products based on a public domain index that investors can trust, access easily and obtain from different sources.”

The iBoxx consortium includes ABN Amro, Barclays Capital, BNP Paribas, Deutsche Bank, Deutsche Börse, Dresdner Kleinwort Wasserstein, Morgan Stanley and UBS Warburg. Each consortium member feeds real-time pricing data for all the constituent bonds to Deutsche Börse, from which an average – the index - is calculated.

Deutsche’s latest move follows ABN Amro’s July launch of a note - backed by credit default swaps – that sought to synthetically replicate the performance of the 50 most heavily traded credits within the iBoxx index.