First sovereign CDS index starts trading

Markit’s index for western European sovereign credit default swaps began trading on September 28. The Markit iTraxx SovX Western Europe is the first of Markit’s sovereign CDS indexes to become tradable.

The company expects the index will encourage investor demand for sovereign credit. An actively traded market for industrialised sovereign credit arose during the financial crisis, due to concerns at the solvency of developed economies.

Markit has also expanded its index for emerging economies. The GEMX will include more emerging markets, in addition to new types of debt. Costa Rica, Kenya, Romania, Sri Lanka and Uruguay will feature in the expanded index, increasing the number of countries from 19 to 24.

The new GEMX will include up to 10 more inflation-linked bonds, each of which will have up to two more dual-currency bonds. The 15 nominal bonds already included in the index will now have up to three dual-currency bonds.

The co-head of emerging markets at Pimco, Michael Gomez, says: “We are very excited by the continued evolution and advancement of the GEMX index. The results should be a more diverse, compelling product to track returns of an expanding emerging markets asset class.”

The revamped GEMX will be available from November 30, with final changes completed by the end of February 2010.