S&P Launches CDS Sovereign Indexes

October 25, 2010

Standard & Poor’s, the world’s leading index provider, launched two credit default swap indexes for sovereign entities designed to track a big part of the over-the-counter credit derivative contracts that's considered similar to insurance policies for bond holders.

The first, the S&P International Developed Nation Sovereign CDS Index, has similar country constituents and weightings as the S&P/Citigroup International Treasury Bond (ex U.S.) Index, the New York-based company said in a press release. The other, of the S&P Eurozone Developed Nation Sovereign CDS Index provides about the same country constituents and weightings as the S&P Eurozone Government Bond Index.

“The launch of the S&P CDS Sovereign Indices not only meets … market demand, but allows users of the indices to directly make comparisons to the international bond market while offering a perspective on the cost of default protection based on those market weights,”

J.R. Rieger, Vice President of Fixed Income Indices at S&P, said in the press release.

Credit default swaps have grown in importance in the past several years and remain an important part of global fixed-income markets. They have been instrumental in measuring investor perceptions surrounding Europe's sovereign debt crisis, with prices spiking at hints of countries such as Greece or Ireland meeting obligations to their bondholders. They were also at the center of the global financial meltdown in 2008, and were the main reason firms such as AIG were bailed out by the U.S. government.

The country constituents and weights for each Index are set at the inception of each index series, S&P said. On each rollover date, a new series will be launched with the current weights and constituents of the respective bond indices.  Both of these indices have a 5-¼ year maturity, as measured from the effective date.

Complete details of the methodology, including the criteria for index additions and removals, policy statements, and research papers are available at www.fixedincomeindices.standardandpoors.com.

 

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