Wall Street creates new credit-default swap index to bet against private credit

• The index arrives as private credit funds face their most serious stress test since post-2008 expansion, with accelerating redemption demands driven by fears that AI will disrupt software businesses they finance
• Apollo Debt Solutions, Ares Capital, and Blackstone Private Credit Fund will comprise 12% of the equally weighted index
• Major banks including Bank of America, Barclays, Deutsche Bank, and Goldman Sachs will begin selling these derivatives next week

Summary:

S&P Dow Jones Indices is launching a new credit-default swap (CDS) index targeting the private credit market, offering investors a mechanism to bet against a sector experiencing significant stress. The CDX Financials index comprises 25 North American financial entities, including banks, insurers, real estate investment trusts, and business development companies (BDCs).

Key Development: This marks the first CDS index linked to BDCs, providing direct exposure to the private credit market. The index was developed through collaboration with dealers and end users who will provide liquidity.

Market Context: Private credit funds are facing their most serious stress test since the sector's post-2008 expansion. Redemption requests from non-traded private credit funds have accelerated recently due to concerns that artificial intelligence will disrupt software businesses they finance.

Major Players: Apollo Debt Solutions, Ares Capital, and Blackstone Private Credit Fund—the largest non-traded BDC—will collectively represent 12% of the equally weighted index. Major banks including Bank of America, Barclays, Deutsche Bank, and Goldman Sachs will begin selling these derivatives next week, with additional lenders expected to participate.

Background: Credit default swaps function as insurance against bond issuer default risk. Goldman Sachs recently pitched hedge funds on products allowing short or long positions on corporate loans, reflecting growing investor interest in alternative private credit exposure strategies.

Implications: The new index provides institutional investors with a standardized tool to hedge or speculate on private credit risk during a period of heightened market turbulence, potentially increasing price discovery and liquidity in this traditionally opaque sector.