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An Energy Index?

12 March 2015 by lberuti

The provisional lists of the constituents of the different credit indices are being published by Markit since the beginning of the week, both in Europe and in the US. As a reminder, the new series (S24 in the US and S23 in Europe) will begin to trade on the 20th March. There will not be many changes in the investment grade benchmark in the US (CDXIG). There should be only 4 names going out (Avon, Genworth, MDC and Safeway) and of course 4 names coming in (Apache Corp, Canadian Natural Resources, Domtar, and Enbridge). What is striking though, is that if you click on the upper right corner of the above grapple, the Energy sector, you will see 3 of the 4 newcomers. That means that the number of CDXIG constituents coming from the energy sector will jump to 12. That is roughly 10% of the total weightings. But from a spread contribution perspective, that number jumps to 32%. One should expect CDXIG24 to exhibit a much higher correlation with oil prices than previous vintages of CDXIG. Who needs an energy index?