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A-Team Insight Blogs

… While Markit Moves into Loan CDS Pricing as Volumes Escalate

Markit Group has launched a pricing service for loan credit default swaps (LCDSs), to meet demand from dealers and institutional investors wishing to take synthetic exposure to secured loan issuers.

Volumes in the LCDS market have surged, the vendor says, with notional outstandings estimated to have grown more than 300 per cent to $40 billon since July this year. The launch of the iTraxx European LCDS index, LevX, in October has spurred liquidity.

The service provides same day and T+1 spreads for more than 300 reference entities and tiers traded in the European and North American markets. Markit draws prices from contributing dealers and cleans them to create a composite which is made available at 4pm daily in London and New York. Sell side firms using the service will see spreads on a particular reference entity when there is a minimum of three dealers making markets in that name, while buy side firms will be able to access even thinly quoted entities, Markit says. Markit will also offer valuations on LCDSs. Markit is the official calculation agent for LevX and LCDX, the North American LCDS index which is expected to launch in the first quarter of 2007.

Matthew Smith, director and head of European loan trading at Deutsche Bank, says: “We expect to see enormous growth in the trading of single-name LCDS and LevX over the coming year, with interest in the product coming from a very broad cross-section of institutional investors. The introduction of Markit’s LCDS pricing service will bring transparency to this new market which will in turn encourage greater liquidity and growth.”
Tim Frost, principal, Cairn Financial Products, adds: “We would expect the availability of this pricing service to stimulate further growth, and we look forward to Markit launching their LCDS parsing service soon.”

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