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Derivatives

Morgan Stanley Creates Corporate Credit Index

Morgan Stanley has created an index of 35 corporate bonds to allow investors to both take on and shed corporate credit risk through investing in the index or entering total return swaps, according to Steven Zamsky, managing director and credit strategist in New York. The firm plans to begin trading calls and puts on the index, dubbed TRACERS, by early next year. "There is a lot of two-way demand and an incredible amount of trading volume," according to Zamsky. Since the inception of the index, a month ago, more than USD4 billion has been traded on the index.

The motivation behind setting up the index was to offer a small basket of popular investment-grade credits. Zamsky said most indices, such as the Standard & Poor's 500, are referenced to large portfolios and are not as easily replicated. The index is comprised of 10-year investment-grade bonds and includes names such as SBC Communications, AT&T Wireless, Citigroup, Wells Fargo and Wal-Mart.

The names on the index will remain the same unless the companies or firms suffer a credit rating downgrade that puts them below investment grade.

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