Australian CDS Index to Increase on Member Changes, Westpac Says

The switching of three members in Australia’s benchmark credit-default swap index as it shifts to a new series is set to push the gauge up, according to Westpac Banking Corp.

Contracts on the debt of Goodman Group, SP AusNet and Asciano Ltd. will be added to the new series of the 25-member Markit iTraxx Australia index, according to a statement on the website of Markit, which compiles the gauge. Contracts on Crown Ltd., AMP Ltd. and Jemena Ltd. will be dropped.

“The change in composition of the Australian iTraxx is likely to lead to a 5-to-10 basis point widening in the index, while the change to duration will add a further 10 or 11 basis points,” said Chris Walter, a credit research analyst at Westpac in Sydney. “Changes to the make-up of the index were driven by an effort to increase credit-default swap liquidity.”

New series of the default swap benchmarks are created every six months when companies are added or dropped depending on their ratings, cost of protection and ease of trading. The maturity date of the new indexes is June 2018, compared with December 2017 on the previous version.

Series 19 of the Australian index will start trading on March 20, according to Markit.

The gauge closed at 105.3 basis points on March 12, the lowest level since May 2011, according to CMA prices. It rose to 105.4 basis points yesterday.

Before it's here, it's on the Bloomberg Terminal.