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US Futures Exchange to list credit derivative futures on Federal Agency debt

The US Futures Exchange has announced plans to list the first credit derivative futures on Federal Agency debentures, beginning with a government tranche of the CDX index including credit default swaps on Fannie Mae and Freddie Mac.

The new product allows for the creation of synthetic agency notes as well as spread trades against corporate and sovereign debt. USFE currently expects to list the new contracts in the fourth quarter of this year.

'Default swaps from both Fannie Mae and Freddie Mac are included in the tens of trillions of dollars referenced to the CDX family of indexes,' says USFE chief executive Satish Nandapurkar.

'Yet there has never been a distinct government tranche to represent the highest quality credit risk. USFE is pleased to provide fixed income investors with a new, on-exchange opportunity to hedge risk in this area.'

USFE collaborated on the design of agency credit default swap futures with David Boberski, head of interest rate strategy at Bear Stearns, a leader in futures clearing and execution. 'Agencies are the largest issuers of corporate debt and they deserve a prominent place in credit derivative trading,' Boberski says.

'Agency credit default swap futures are a rare example of a product that is relevant to both credit and interest rate traders. While USFE continues the tradition of offering government risk on an exchange, creating the mechanics to match the over-the-counter market is a first for the futures industry and highlights the continued convergence of these markets.'

The Chicago-based US Futures Exchange, created in its present form in 2006 following Man Group's investment in the former Eurex US, offers specialised products to meet the market demands of retail, hedge fund and institutional customers in a fully-regulated, centrally-cleared futures and options exchange.

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