Derivatives change the high-yield fabric

High yield was a quiet area of the otherwise flourishing credit derivatives market. Quiet, that is, until indexes iBoxx and Trac-x merged earlier this year. Volumes in high-yield credit derivatives have exploded and changed the fabric of both cash and synthetic high-yield investing.

When indexes iBoxx and Trac-x merged in June to create the Dow Jones iTraxx credit derivatives index family, the event was trumpeted as a turning point for the global credit market. Some touted the new index as the holy grail for the market and predicted credit would never be the same. Market-makers and watchers alike were speculating on the impact the merger would have, discussing the liquidity that would surely enter the market and predicting what new products would emerge.

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