Lehman to launch credit default swap indexes

The three main credit default swap indexes will primarily consist of the top 250 issuers in the Lehman US credit index, the top 150 issuers in the Lehman euro credit index, and the top 40 issuers in the Japanese credit index. The bank will also be publishing a comprehensive global CDS index. The index will have a maturity of five years, rolling into new five-year CDS contracts quarterly. The index constituents, however, may change on a monthly basis.

“Over the past decade we’ve seen tremendous growth in the CDS market. Recent estimates put the current market outstanding notional of CDS close to $2 trillion,” said Dominic O’Kane, head of European quantitative credit research at Lehman Brothers. “The standard CDS format means a CDS index will provide an almost pure barometer of sector and regional credit quality, and our daily pricing will enhance transparency around this growing market.” He added that the bank would also use the index to create a range of credit products including index swaps, tranched portfolio products and index options.

Statistical data for the new benchmarks will be available from July 7, while returns will be available from August 1. Details by sector and quality will be reported for each of the main indexes on a daily basis.

Steven Berkley, global head of fixed-income indexes at Lehman Brothers, added that investors can choose from indexes that weight issuers equally or by their percentage market share in the Lehman credit indexes.

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