JP Morgan Chase to release ratings-based JECI, while ABN launches iBoxx note

JP Morgan Chase is planning to launch a ratings based version of its JP Morgan European credit index-linked security (JECI) in the next few months. The new JECI products will incorporate credits with specific ratings, initially focusing on AA and A rated corporates.

“This will be useful for people wanting to take views on the whole rating category without taking a view on specific issues or for issuers wanting to hedge before issuance,” said Lee McGinty, vice-president of bond index strategy at JP Morgan Chase in London.

JECI is a five-year note backed by credit default swaps, launched by JP Morgan Chase in March this year. JECI currently tracks the 100 most traded credits in the European markets, ranging from AAA rated Nestle to BBB rated PowerGen.

Earlier this week Dutch investment bank ABN Amro released a tradeable note backed by credit derivatives, called iBoxx 50. The iBoxx 50 uses a basket of the 50 most prolific issuers of European corporate bonds based on the iBoxx index, an index of around 300 corporate credits whose constituent bonds are priced by seven investment banks, including ABN Amro.

Although the iBoxx 50 note has the same constituent credits as the iBoxx index, market participants said the note is priced by ABN Amro and does not use the iBoxx index consortium pricing.

Niall Cameron, ABN Amro global head of debt syndication and investment grade trading, admitted the note could have used a different credit index as its underlying. “We could have used the same names as iBoxx and called it something else, but we chose the iBoxx name which carries good weight.”

Unlike JP Morgan Chase’s JECI, which is issued by a collateralised special purpose vehicle, ABN Amro's new note carries the bank's own credit risk, though this is not included in the overall spread.

ABN Amro said the bank is thinking of issuing further products in the iBoxx series, including notes linked to sub-sectors within the corporate credit markets. Cameron said the current note is likely to be rebalanced in six to 12 months time should the composition of the underlying index change dramatically.