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Credit derivatives: S&P to launch CDS indices

Can the index provider’s expertise in equity markets translate into fixed income?

Standard & Poor’s intention to launch its own family of credit default swap indices has been met with some scepticism from the market about the likely success of the new product.

The announcement comes just weeks after Markit Group, which is owned by a consortium of 16 banks, snapped up CDS IndexCo and the International Index Company, thus consolidating most of the best-known and widely used CDS index products in one company and, ultimately, under one brand name.

"It will be very hard to get people to trade [the S&P indices], especially given volumes in which the current contracts already trade," says a London-based credit derivatives banker. "They might try to get this to trade on exchange. The exchanges are looking for indices to trade, maybe not in Europe but in the US."

S&P will introduce three US-focused CDS indices in the first quarter. There will be the S&P US Investment Grade CDS index, the S&P US High Yield CDS index and the S&P 100 CDS index. The indices will be offered in two forms: one that will incorporate all credit events that have occurred and another that will remove defaulted credits when a credit event occurs.

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