Interpreting Funded and Unfunded CDX Total Return Indices

Summary

The document asks what an unfunded total return series for the CDX North American investment-grade index represents. It cites a Bloomberg series identified as an unfunded total return index and distinguishes the question from the general difference between funded and unfunded securities.

The central issue is whether the index tracks returns on a standard unfunded credit default swap index contract, in contrast to a funded credit-linked note, or instead filters the underlying constituents to include only unfunded securities. No answer or supporting explanation is included. The question is therefore useful as a prompt about product structure and index construction, but it does not establish which interpretation is correct. Resolving it requires the index methodology and the conventions used to calculate its total return; the document supplies neither.

Key ideas

• The document asks how to interpret an unfunded total return series for a CDX investment-grade index.
• It distinguishes the structure of an unfunded index contract from a funded credit-linked note.
• It also asks whether the label refers to the underlying constituents, but provides no answer or methodology.

Tags

# CDX funded vs unfunded returns timeseries


# CDX funded vs unfunded returns timeseries












I've been asked to provide a CDX.NA.IG unfunded total returns timeseries, for which I've been able to use a Bloomberg ticker LX01TUUU Index. This works fine - it's called an unfunded total returns index

I also understand the difference between funded and unfunded securities in general

When I look at the unfunded returns timeseries, what exactly is this measuring? Is it the returns for some kind of 'unfunded CDX contract' (as opposed to funded one - a CLN?). Or, is it that the things underlying the CDX are 'filtered' to only included unfunded securities?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.