The index will comprise 50 equally weighted investment-grade CDSs based on municipal debt, with tenors ranging from three to 10 years. The index excludes bonds issued to pay for healthcare costs and bonds securitising income from the 1998 liability settlement agreement between US states and tobacco companies.
The London-based data provider said it designed the index to meet investor demand for a liquid and transparent tool to gain exposure to municipal bonds, at a time when credit pricing has become increasingly important to municipal bond buyers.
“The Markit MCDX index will attract new investors to the market by increasing tradability and liquidity,” said Niall Cameron, head of indexes and equities at Markit.
To ensure liquidity, the index market-makers at launch will include Citi, Goldman Sachs, JP Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley and UBS.