A series of indices for credit-default swaps referenced to U.S. asset-backed securities will be launched next month. They have been developed by CDS IndexCo, a consortium of 16 investment banks who direct the North American CDX indices suite. Brad Levy, chair of CDS IndexCo and a v.p at Goldman Sachs in New York, said the indices will bring both liquidity and more attention to the ABS CDS market. Tagged ABSX, the indices are touted by market players to begin trading on Oct.11.
There will be a series of five indices referencing 20 issuers of residential mortgage-backed securities. The indices will be traded on a pay-as-you-go format and roll every six months. The exact makeup of the indices is yet to be determined.Markit will administer, calculate and market the indices and the company has already published trade rules and confirmations.Teresa Chick, spokesperson for Markit in London, declined comment.
One trader said the new indices will increase liquidity in synthetic ABS, but questioned if tranche trading will develop as it has through the European iTraxx and U.S. CDX indices. "It will be difficult to tranche up and price 20 home equities with the same take up issuance and rating," he said.
