CMBX, the synthetic commercial mortgage-backed securities index, was launched last week and several tranches tightened with light trading. Traders said the tightening was the result of brisk one-way activity, with most investors looking to sell protection, particularly within the BBB and BBB- sub indices.
The index references AAA, AA, A, BBB and BBB- securities from several deals. The BBB- index has tightened by 11 basis points from its opening level of 134 basis points, traders said. They added that CMBX will be expanded to include a funded note program and a tranched series.
Credit derivatives are typically unfunded, which means the seller of protection is not required to put in money up front. A funded note program means the protection buyer may require the protection seller to pre-pay the entire notional value of the contract at the outset. Currently CMBX offers an unfunded product and references on separate benchmark rating levels.
Trading desks noted that new accounts are using the index to take positions on where they see the most risk right now. Hedge funds looking for relative value trades and other asset managers seeking quick credit exposure were some of the new accounts. Whole loan originators also seeking spread hedging for their portfolios are also expected to increasingly purchase the derivatives.
The index is administered by Markit Group in conjunction with Bank of America,Bear Stearns,Citigroup,Credit Suisse,Deutsche Bank,Goldman Sachs,JPMorgan,Lehman Brothers,Merrill Lynch,Morgan Stanley,Nomura International,RBS Greenwich Capital,UBS and Wachovia.