Credit indices: The long and short of European CMBS
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Credit indices: The long and short of European CMBS

A new index might increase both liquidity and volatility.

Despite growing volumes of ABS derivative trading in the US, repeated attempts to introduce index derivative products to more effectively express nuanced views on ABS credit spreads in Europe have had mixed results. Now the developers of the latest rules-based ABS index – ECMBX, managed and calculated by Markit – argue that its concept and transparency will drive liquidity from day one. Moreover, they claim, both the underlying market and the intended clientele will be more receptive to a tradeable index offering than previous launches.

ECMBX comprises four sub-indices – sterling and euro triple-A and triple-B CMBS. Each sub-index will consist of 20 equally weighted names, which must have at least two ratings. Any bond less than six months old must have a factor of 0.9 or greater (where factor is equal to current face/original face) and any bond older than six months must have a factor of 0.75. Weighted average life in all cases must be between three and eight years and the notional triple-A references must have been at least €250 million or £250 million at issue.

The index rolls on a six-monthly basis and dealers, subject to a quorum, have the right to exclude deals.

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