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Derivatives

J.P. Morgan Launches First High-Yield Credit-Default Swap Index

J.P. Morgan has launched what it believes is the first high-yield credit-default swap index representing the five-year credit risk of a linear basket of 100 junk bond issuers, according to officials at the firm. "The main reason we did this is because until now, there have been no good alternatives to trade the market as a whole from the long and short side," said Angie Long, head of high-yield credit derivatives trading in New York. The product has been correlated to traditional high-yield bond indices and will allow clients to both invest and hedge their exposure to the U.S. high-yield market through the use of high-yield credit derivatives. The product is designed to cater to clients looking to allocate assets in high yield, Long said.

A trader at a rival firm said this is a natural development for credit derivatives as it follows the path of the cash market, where there are already numerous indices for high-yield debt. He added that this is the first index of its kind as far as he is aware.

The new index, dubbed HYDI-100, is being offered as a funded product with a fixed coupon of 9.4% and a five-year maturity or as a swap with a fixed fee of 520 basis points with a five-year maturity. J.P. Morgan will rebalance the index every six months and any existing contract holder will be permitted to roll the product into a new contract.

 

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