S&P Dow Jones Indices is rolling out a fresh credit-default swap index designed to reflect exposures to the private credit market, the company said. The series - called the CDX Financials index - comprises an equally weighted basket of 25 North American financial entities, spanning commercial banks, insurance companies, real estate investment trusts and several business development companies, or BDCs.
Credit default swaps are derivatives that function as protection against a bond issuer failing to meet its obligations to creditors. The new index is positioned as a tool for market participants seeking to express views on credit risk in an area that has encountered mounting pressure in recent months.
"This index evolved through feedback with various market participants, including the several dealers who plan on providing liquidity and various end users," said Nicholas Godec, head of fixed income tradables & commodities at S&P Dow Jones Indices. He added that one notable aspect of the index is that it is the first instance of CDS linked to BDCs, thereby creating CDS exposure tied to the private credit market.
The launch comes at a time when non-traded private credit funds have seen faster-than-usual redemption requests, a trend that has accelerated amid concerns about the potential impact of artificial intelligence on software companies financed by those funds. Within the index, three large non-traded BDCs - Apollo Debt Solutions, Ares Capital and Blackstone Private Credit Fund - will together represent 12% of the equally weighted composition.
Industry liquidity is expected to be supplied by multiple dealers. According to reporting cited by market participants, major banks including Bank of America, Barclays, Deutsche Bank and Goldman Sachs will begin offering the derivatives as soon as next week, with additional lenders potentially joining.
Separately, Reuters reported last month that Goldman Sachs was marketing a product to hedge funds enabling them to take short or long positions on corporate loans, a development cited by a source familiar with the discussions.
As the CDX Financials index becomes available, it provides a standardized contract for investors to gain or hedge exposure to credit stress in the private credit ecosystem. Market participants will be watching dealer participation and end-user demand as indicators of how actively the new index will trade.