A third U.S. credit-default swap index referenced to sub-investment grade credits will be launched when the existing Dow Jones North American CDX indices roll later this month. The new index, tagged CDX.NA.XO, will comprise 35 equally weighted, BB or Ba-rated names, based on ratings by Standard & Poor's and Moody's Investors Service. Trading will begin on Sept. 20.
The index will capture an overload of former investment-grade corporates that have been downgraded this year, said Brad Levy, v.p. at Goldman Sachs in New York. Goldman is the current chair of CDX IndexCo, a consortium of 16 investment houses licensed to create CDX indices for Dow Jones. "The rating agencies don't all move in sync when downgrading and there is a period of time when names are in crossover between investment grade and high yield," Levy said. "This is particularly prevalent at the moment in credit markets in northern America." Levy also noted the index was driven by the needs of both dealers and the buy-side.
Meanwhile, up to eight corporates that have been downgraded this year are expected to be dropped from the CDX investment grade index for the fifth series. Ford Motor Co. and General Motors Corp. lead the list. In Europe, no changes are expected to the fourth version of the iTraxx Main or HiVol indices, but another five names will be added to the iTraxx Crossover index to bring the total number of credits to 40.