A credit default swap index (CDS index) is a credit derivative used to hedge credit risk or to take a position on a basket of credit entities or indices; they are a portfolio of actively traded liquid names in a particular sector of the market.
Unlike a credit default swap, which is an over-the-counter credit derivative, a credit default swap index is standardized, meaning that they are highly liquid and trade at a small bid-offer spread. This makes CDS indicies a primary market vehicle for gaining diversified credit exposure.
There are two main families of index:
- CDX (CDX indices contain North American and emerging market companies and are administered by CDS Index Company (CDSIndexCo) and marketed by Markit Group)
- iTraxx (iTraxx indices contain companies from the rest of the world and are managed by the International Index Company)