Emerging markets credit derivatives index debuts

Dubbed EMDI May 08, the initial product consists of 19 sovereign credits – effectively an 85.23% portion of the globally diversified version of the US house’s Emerging Markets Bond Index (EMBI).

EMDI has a coupon equal to the weighted average credit spread of the names in the portfolio. The credit spread of each component was fixed at inception with a coupon of 4.35%, though this will be adjusted when credit events occur.

JP Morgan Chase said it is “committed to making a two-way market in EMDI”, and is aiming for a bid-offer spread of less than one point. The first official pricing of EMDI was originally tabled for May 6, to coincide with the expected implementation of new International Swaps and Derivatives Association credit derivatives definitions.

However, the product launch date was less of an imperative, given the delay in implementation of the new definitions. JP Morgan Chase said functionality has been built into the index to accommodate the use of 1999 Isda credit derivatives definitions and to “allow for an orderly transition to the new credit derivatives market standards” when implemented.

The bank plans to launch a fungible note version of EMDI by mid-year. The product range will eventually be subsumed into the Trac-x product suite – the initiative by JP Morgan Chase and Morgan Stanley to combine their Jeci and Tracers credit derivatives index products.

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