Monday, April 07, 2008

Through the Bloomberg, credit spreads you will see

Credit Market Resources for non-bond investors

I've received several e-mails in recent weeks asking how one can follow goings on in the credit market if one is not a bond trader. Its true that it can be very difficult to follow bond spreads if you aren't active in corporate bonds. Dealer firms are loathe to give out information to non-customers, even to customers of a different department. After all, information arbitrage is the name of their game.

Anyway, here is a good place to start.

The CDX Index
The best place to follow general corporate bond spreads is by watching the CDX indices. The CDX is actually a series of credit default swap baskets. The two most important ones (in my opinion) are called "IG" for investment-grade, and "HY" for high-yield.

The indices are coded as follows: CDX.NA.IG.10, which stands for the North America, Investment Grade, index, 10th series.

Other versions of CDX include XO (cross-over), HVOL (high volatility IG names), HY (high yield), BB (BB-rated high-yield), B (B-rated high-yield), and EM (emerging markets).

Accessing the CDX: Non-Bloomberg Edition
The CDX is calculated by Markit, and is available here. You can click through the name of each index for graph of each index. I like to watch the spread, as opposed to the price, since the spread can be tracked as the indices roll over (i.e., there is a new series created every 6-months), whereas the price cannot.

The rolling over makes, it can be hard to follow over longer periods of time. For reference, the CDX.IG.9 was +139 and the HY.9 was +671 at the end of March.

You can find the names within the index by clicking the index name, then clicking "Constituents."

Markit only updates this daily, and it very late in the day by the time they actually do the updating.

Accessing the CDX: Bloomberg Edition
On Bloomberg, type GCDS

On the top left (the first drop down) select "CDS Indexes."

In the second drop down, immediately to the right, will be dozens of options, including all the CDX versions. This will show where the CDS are for each of the constituents.

If you want to see the index itself, select "Region, Sector, Rating" in the first box, skip over to the third box, and go all the way down to #38 (you'll have to hit Page Down) "CDX Indices." That will give you the level on the index itself. On the far right, you'll see check boxes, which allows you to run the graph on as many or as few of the indices as you like.

Bloomberg does update this page intra-day.

By the way, GCDS is a great way to watch CDS levels on various bonds, but beware. Bloomberg isn't necessarily accurate down to the last 5bps on CDS levels, especially for fast-moving names. For bonds which are trading with points-up-front, forget it. Bloomberg doesn't seem to understand those bonds at all. But broadly speaking, it gets the direction right.

Hope this helps.


Anonymous said...

"there is a new series created each quarter"
every 6 months

Accrued Interest said...

You are right. Sorry.

Anonymous said...

As blogs go, Accrued Interest has to be among the most informative and interesting there is.

I would only add that the index that I really and truly do think is the thermometer inserted in the [rhymes with tectum] of "the financial industry" is the value of the dollar in yen.

Does it lead or follow events in "the financial industry" at large? I think it leads by at least 12 hours. I think the yen get borrowed first, then the dollars get bought, then the dollar markets get juiced.

I would be thrilled by any commentary on this.

Anonymous said... have been very obliging and helpful!


UrbanDigs said...

As I discussed widening credit spreads on Feb 13th:

WHAT CDX.NA.IG SERIES 9 MEANS (as I understand it from contacts I know in these markets): NA stands for North American. IG stands for Investment Grade. Every 6 months dealers are polled. They vote names into the new index. We're now up to series 9. To be eligible for a vote you must have contributed end of day marks for X% of days in the last 6 months on the names in the old index; X being a lot. There are a bunch of indices, but the two big ones are HY - high yield, and IG - investment grade. 100 names are in each. You take the 100 names and average the credit spreads to get the CDS spread on the overall index. Bigger spreads = worse credit in the index as a whole. If HY (high yield index) goes from 500bps to 1500bps and IG (investment grade index) goes from 50 to 70bps you know the HY index is getting a lot worse a lot faster than IG in terms of credit quality. Those numbers are just arbitrary to demonstrate a point.

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