ABN and Deutsche roll out iBoxx 100-linked note

ABN Amro and Deutsche Bank have joined forces to launch a credit default swap product linked to the iBoxx 100 index. The iBoxx 100 note reflects the performance of the top 100 names in the iBoxx euro corporate overall index, weighted by their duration-adjusted market capitalisation.

A corporate non-financial component of the benchmark iBoxx note is also being rolled out. Both products will be in the form of a euro-denominated, five-year note with the intention to roll every six months. Investors buy a note that references a pool of credit default swaps on the iBoxx 100 index.

ABN Amro released an iBoxx 50 credit-linked note last July, followed by an iBoxx 40 credit-linked note in October, both backed by credit derivatives. The new iBoxx 100 products will be issued via a collateralised special-purpose vehicle, unlike the iBoxx 50 and 40 notes, which both carried the bank’s own credit risk.

“We wanted to create a benchmark index that included financials as well, compared with the iBoxx 50 and 40 products, which consist entirely of corporates,” Charlie Longden, head of credit markets structured trading at ABN Amro in London, told RiskNews. Longden said the benchmark product comprises roughly 60:40 non-financial to financial reference entities.

The iBoxx 100 products will be jointly marketed by ABN Amro and Deutsche Bank, which will both provide market making capability. "As the Index product evolves, it is essential that this type of issue is traded off a multi-market-maker platform," said Alistair Mullen, head of structured credit marketing at ABN Amro in London. "It should give investors the transparency they require".

The market making of the note will be assured with a bid-offer spread of 5 basis points under normal market conditions and a live tradable two-way market will be available for deals up to €50 million.