Wall Street launches new CDS index tied to private credit

S&P Dow Jones Indices is introducing a new credit-default swap index connected to the private credit market, offering investors a fresh way to bet against a sector that has come under pressure in recent months.

The new CDX Financials index brings together 25 North American financial institutions, including banks, insurers, real estate investment trusts, and business development companies. Its purpose is to give market participants a broader instrument for managing risk or taking directional positions on financial credit exposure.

Credit-default swaps are derivatives typically used as protection against the possibility that a borrower, such as a company, bank, or government, fails to repay its debt. By extending this structure to parts of the private credit space, the new index opens the door to more direct bearish or hedging strategies linked to that market.

The launch comes at a time when private credit is facing one of its toughest periods since the industry expanded rapidly after the 2008 financial crisis. Investor concerns have grown as redemption pressure has increased in some non-traded private credit funds, partly driven by fears that artificial intelligence could disrupt software companies financed by these vehicles.

According to S&P Dow Jones Indices, the product was developed after discussions with dealers and end users, with liquidity expected to be supported by several major banks. One of the most notable elements is the inclusion of CDS exposure linked to business development companies, marking a first for instruments tied so directly to private credit.

Among the most significant names in the index are Apollo Debt Solutions, Ares Capital, and Blackstone Private Credit Fund, which together account for around 12% of the equally weighted basket. Major institutions such as Bank of America, Barclays, Deutsche Bank, and Goldman Sachs are expected to begin offering the derivatives, signaling growing institutional interest in structured tools linked to private credit.

The launch also follows broader efforts on Wall Street to build products that let hedge funds and other investors take long or short positions on corporate loan markets, showing that demand for more flexible credit trading instruments is continuing to grow.