The number of U.K. fund managers using credit derivatives is expected to jump when an iTraxx sterling credit-default swap index is launched next week. Dealers say clients have been demanding greater exposure to sterling-denominated CDS and will use index-based products to hedge sterling bond portfolios. Stephen Booth, fixed income manager at U.K.-based investment group Royal London Asset Management, said the index will kickstart his group's limited credit derivatives activity. "It will make things easier for us to trade CDS," he said.
Representatives from The Royal Bank of Scotland, HSBC, Barclays Capital, ABN AMRO, JPMorgan and Deutsche Bank are road showing the index to other U.K. managers and investors this week. Tagged iTraxx SDI-75, it is expected to launch on Nov. 29. The index got underway in July, when RBS put the idea to buysiders (DW, 7/15). The firm is now chairing a newly-formed iTraxx sterling committee which will oversee which names are included in the index and adapt it to any market movements.
SDI-75 will comprise 75 equally-weighted issuers of sterling-denominated bonds, including European, Asian, U.S. and U.K. names. It will be launched with a 10-year CDS contract in sterling and a 10-year fixed-rate note referencing the index. It will be rebalanced every March and September. Names in the index include Marks & Spencer, General Electric and Proctor & Gamble. One market official said he is sure there will be interest in CDS but it remains to be seen how much demand there will be for the note. "There is potentially liquidity there, but I'm not sure who will want to participate," he said.