S&P Announces Launch of Credit Default Swap Indexes

According to the announcement, the three indexes will launch in the first quarter of 2008. The three new indexes will be:

• The S&P U.S. Investment Grade CDS Index, which will consist of 100 equally weighted investment grade U.S. corporate credits,
• The S&P U.S. High Yield CDS Index, which will consist of 80 equally weighted high yield U.S. corporate credits, and
• The S&P 100 CDS Index, which will consist 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 (based on float adjusted equity market capitalization).

Standard & Poor’s said it is offering 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.

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 will use CMA DataVision as its primary source of pricing for the indices.

“The S&P U.S. CDS Indices are designed to be liquid and efficient enough to support investment products such as index funds, index portfolios and derivatives,” said David Blitzer, Managing Director and Chairman of the Index Committee at Standard & Poor’s, in the announcement.  “We expect a good amount of interest in these indices by both institutional investors and dealers alike.”

A credit default swap is an agreement between two parties to exchange the credit risk of an issuer.

The complete methodology for the S&P U.S. CDS Indices will be made available on  www.standardandpoors.com/indices  when they are launched.