iTraxx LevX Indexes

AAA

DEFINITION of 'iTraxx LevX Indexes'

A set of two tradable indexes that hold credit default swaps (CDSs) representing a diversified basket of 35 European companies that have liquid debt offerings in the secondary market. The iTraxx LevX Senior Index represents only senior loans, while the iTraxx LevX Subordinated Index represents second- and third-lien loans.

The index offers two pricing sets each day: a mid-day price and end-of-day price. Prices are maintained by a consortium of investment banks, including Morgan Stanley, Barclays Capital, and Lehman Brothers. Both indexes begin with an initial coupon rate, then trade up or down to reflect market activity. New LevX indexes are released periodically to reflect new debt offerings or new company participation in the leveraged loan markets.

INVESTOPEDIA EXPLAINS 'iTraxx LevX Indexes'

The iTraxx LevX indexes have only been trading since late 2006, and while trade volume is still low, the average dollar amount traded is greater than $5 million. The contracts are mainly used by speculators and large commercial banks as a hedge on balance sheet assets or other portfolios. Demand for indexes like the iTraxx group increased greatly with the spike in leveraged buyouts in the 2004-2007 period, as LBOs typically create a large amount of low-rated corporate debt.

If the market perceives that overall credit quality is falling, the price of the iTraxx indexes will fall, and therefore pay a higher coupon rate. Because most of the debt covered is leverage loans (lower credit ratings), the index may prove to be more volatile than a hypothetical index that covers investment-grade debt offerings.

RELATED TERMS
  1. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  2. Leveraged Loan

    Loans extended to companies or individuals that already have ...
  3. Leveraged Buyout - LBO

    The acquisition of another company using a significant amount ...
  4. Default Risk

    The event in which companies or individuals will be unable to ...
  5. Credit Default Contract

    Security with a risk level and pricing based on the risk of credit ...
  6. iTraxx

    A group of international credit derivative indexes that are monitored ...
RELATED FAQS
  1. Why has the market for high yield bonds grown so much?

    Reasons for the rapid growth of the high-yield bond market include the creation of new types of issues, a prolonged period ... Read Full Answer >>
  2. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
  3. How can electricity be traded as a commodity by an individual investor?

    Electricity can be traded in the financial marketplace like any other commodity. Electricity futures trading offers an alternative ... Read Full Answer >>
  4. What are some examples of smart beta ETFs that use passive and active management?

    There are a number of smart beta exchange-traded funds (ETFs) that use passive and active management, including the WisdomTree ... Read Full Answer >>
  5. How does implied volatility impact the pricing of options?

    Implied volatility is an important aspect of the time value premium of an option. As implied volatility increases, call and ... Read Full Answer >>
  6. Which federal regulatory agencies approved and are now responsible for enforcing ...

    Five federal regulatory agencies approved and are jointly responsible for enforcing the Volcker rule. These agencies include ... Read Full Answer >>
Related Articles
  1. Options & Futures

    An Introduction To Structured Products

    Learn a simple way to bring the benefits of derivatives into your portfolio.
  2. Options & Futures

    Why Leveraged Investments Sink

    This powerful tool can have you swimming in money or drowning in underwater equity.
  3. Active Trading

    How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.
  4. Investing

    Seven Investing Books For Your Summer Reading List

    It’s almost 4th of July, the season of summer reading. Picking up a book during your holiday can be a great opportunity to learn more investing.
  5. Fundamental Analysis

    Understanding the Profitability Index

    The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness.
  6. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  7. Fundamental Analysis

    Explaining the Monte Carlo Simulation

    Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes.
  8. Credit & Loans

    What is a Syndicated Loan?

    A syndicated loan is one that involves a group of lenders (called the syndicate) who pool their lending resources to make a loan.
  9. Investing Basics

    Explaining the Volcker Rule

    The Volcker Rule prevents commercial banks from engaging in high-risk, speculative trading for their own accounts.
  10. Economics

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.

You May Also Like

Hot Definitions
  1. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  2. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  3. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  4. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  5. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  6. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!