Standard & Poor's said on Wednesday it has launched a series of credit default swap (CDS) indexes, including one that will closely replicate the components of its S&P 100 stock index. The S&P 100 CDS Index, which will be the first CDS index based on an equity index, will make it easier to compare the performance of stocks and the $29 trillion credit derivative market, S&P said in a release.
The index will initially launch with around 80-90 of the companies in the S&P 100 stock index that have sufficient liquidity in CDS and the companies will have the same weightings as in the stock index, S&P said. "With this first-of-its-type index, Standard & Poor's is providing market participants with a view of the relationship between the equity market and the CDS market for the S&P 100 constituents." S&P said.
CDS are used to protect against a borrower defaulting on their debt or to speculate on their credit quality. S&P will also introduce an investment grade CDS index based on 100 equally weighted US investment grade companies and a high yield CDS index comprising 80 equally weighted US junk-rated companies. CDS included in these indexes will be selected based on their liquidity, S&P said. The swap prices will be primarily based on data from CMA DataVision.