Derivatives linked to Nvidia Corp. have become some of the most traded in the U.S. credit default swap market as investors seek to hedge their exposure to the company's debt following the $25 billion bond issuance in June.
Market participants have traded protection on $6.9 billion of debt over the past six months – compared to $640 million in the previous six months, Bloomberg reported, citing Nicholas Godek, head of fixed income and commodity trading at S&P Dow Jones Indices, referencing DTCC data. This surge was the main reason for Nvidia's inclusion in the latest version of the CDX Investment-Grade Index, which took effect on Monday.
The company has become one of the most liquid participants in Series 47 of this index, which is used as an indicator of perceived credit risk. Other participants include technology companies Oracle, Amazon, Alphabet, Broadcom, Meta, and Microsoft. Along with Nvidia, SpaceX joined the index: both companies sold high-grade bonds totaling $25 billion in June.
"There has been a huge increase in trading CDS linked to these names," Godek said. "And with the financing going into things like data centers, there are no signs that this trend will stop anytime soon."
S&P Dow Jones Indices considers a range of factors when revising the CDX index every March and September: CDS liquidity, credit ratings, and the issuer's debt structure. New participants shorten the index's maturity and typically increase trading volume. The roll, along with the spike in Treasury yields, has led to the index's expansion.
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