Lehman extends into CDS indices

News

Lehman Brothers is launching a credit default swap index, designed to allow benchmarked, real-money credit investors to compare how their portfolios are performing relative to the default swap market. The index includes 440 names globally – 250 in the US, 150 in Europe and 40 in Japan. The names included are the largest borrowers in the bond markets and are weighted according to the market value of the bonds outstanding; there is also an equally weighted version.

Because the new index has only been priced since July, Lehman is not yet able to calculate how correlated it is to the bank’s existing cash indices.

Several other CDS indices have been launched in the past 18 months, including Deutsche Bank’s iBoxx and the Trac-x indices from JPMorgan and Morgan Stanley. But whereas iBoxx and Trac-x are designed to allow investors to trade exposure to credit in one instrument, Lehman’s index is not designed to be tradable.

According to the bank, there has been interest from US and French asset managers in using the new index as a benchmark for accounts that are able to use credit default swaps. By trying to provide an index that fund managers can benchmark their cash portfolios to, Lehman is ensuring that other index providers do not usurp its dominance in benchmarkable credit indices.