The CJ50 index that tracks the movement of Japan’s 50 most actively traded credit default swaps started trading today, with volume reaching beyond ¥10 billion ($83 million), according to BNP Paribas.The index was created by Bank of Tokyo-Mitsubishi, Goldman Sachs and BNP Paribas. Crédit Lyonnais, UBS and UFJ are also dealers of the index and Stéphane Delacote, Tokyo-based head of Asia-Pacific credit derivatives at BNP Paribas, said several new dealers are expected to make markets in the index in the near future.
The index is designed to allow participants to hedge their credit portfolios by buying a diversified protection on Japanese credits with a tight bid/offer spread, said Delacote. While he admits it is "not a perfect hedge", he maintains it would nonetheless be effective in hedging a portfolio of Japanese credits. Also, buying protection on the portfolio of the 50 most liquid Japanese credits is more economical than buying protection on each individual credit in a portfolio.
Notional amounts of contracts range from ¥500 million to ¥1 billion. By late Thursday, the index was quoted at a bid/offer spread of 35/36. “The bid-offer spread of 1bp provides banks with lower transaction costs than any of the underlying credits in the Japanese CDS market, which includes Japan sovereign quoted today with a 3bp bid offer spread (16/19),” BNP Paribas said in a statement.
More on Credit Derivatives
Managed deals could be next, but market's potential is expected to be limited
Active deals seen as “the next step” after last year’s revival of static CDOs
Risk Awards 2015: BlueMountain founder is at the centre of a changing market
Sign up for Risk.net email alerts
Sponsored video: Tradeweb
Multifonds talks to Custody Risk on being nominated for the Post-Trade Technology Vendor of the Year at the Custody Risk Awards 2014
Sponsored webinar: IBM Risk Analytics
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.