CMBX: the index that trades CMBS credit risk without owning the bonds

CMBX is a family of synthetic credit indexes on commercial mortgage-backed securities. Each CMBX sub-index is a basket of credit default swaps referencing 25 equally weighted CMBS bond classes of the same original rating, drawn from conduit deals of one issuance period. Investors use it to hedge or take a view on CMBS credit without buying the bonds.

CMBX was created by Markit and CDS IndexCo in 2006 (Finextra, 2006) and is now administered by S&P Dow Jones Indices, which publishes the index methodology. The structure described below follows that methodology; trading terms follow the standard documentation dealers use.

How the index is built

Feature	How CMBX works
Reference obligations	25 CMBS bond classes per sub-index, equally weighted
Source deals	Conduit CMBS from a defined issuance window, selected under the methodology’s eligibility rules
Sub-indexes	One per original rating level, named like CMBX.NA.AAA, CMBX.NA.AS, CMBX.NA.AA, CMBX.NA.A, CMBX.NA.BBB- and CMBX.NA.BB
Series	Numbered (CMBX.1, CMBX.2, …); a new series references a newer set of deals, and older series keep trading
Form	Credit default swap, not a bond: no principal changes hands at the start

Because each series is tied to deals of a given vintage, the series differ a great deal: the loans behind an older series were underwritten in a different market and may be concentrated in property types that later struggled. Traders often pick a series for its exposure to, say, retail- or office-heavy pools.

How a trade works

• Protection buyer pays a fixed coupon on the notional amount, monthly, and pays or receives an upfront amount so the trade starts at market price. Economically, buying protection is like being short the bonds.
• Protection seller receives the coupon and takes the credit risk. Economically, selling protection is like owning the bonds without funding them.
• When the reference bonds suffer losses (principal writedowns, or principal or interest shortfalls), the seller pays the buyer as they happen, under “pay-as-you-go” terms. If a writedown is later reversed, the money can flow back.
• The notional shrinks as the reference bonds pay down principal or are written down.

The price is quoted per 100 of notional. A price below 100 means the market expects losses or demands a wider spread than the fixed coupon; above 100 means the opposite.

What CMBX is used for

1. Hedging. Holders of CMBS bonds, and lenders carrying conduit loans until their next deal, can buy protection to offset a widening in credit spreads.
2. Expressing a view. A fund that expects losses on a vintage, a rating level or a property type buys protection on the series most exposed; one that expects recovery sells it.
3. Price discovery. CMBX trades every day, while individual CMBS bonds trade less often, so it gives a running read on the market’s view of commercial real estate credit.

Lower sub-indexes (BBB-, BB) behave like the deals’ mezzanine and first-loss-adjacent classes: they move most when defaults rise. The AAA sub-index moves least. To see where losses actually start in a deal’s stack, read CMBS tranches.

What CMBX means for a borrower

CMBX does not fund loans and is not a loan rate. But it is a good thermometer:

• Spreads travel together. Conduit lenders price loans as a spread over Treasury or swap rates, and that spread follows where new CMBS bonds can be sold. When CMBX sells off, new-issue bond spreads usually widen, and loan quotes follow. See current coupons on CMBS loan rates.
• Timing a rate lock. A borrower near closing feels a credit spread move only until the rate is locked. If the market is moving, ask your lender when and how the rate is set. See how to get a CMBS loan.
• Stress on old vintages. A series falling sharply signals rising defaults in older loans. Those loans are coming due; the refinancing picture is on the maturity wall, and owners of loans in trouble should read special servicing.

CMBX prices are published to subscribers by dealers and data vendors, not on a free public feed. This site’s figures come instead from the loan-level data public CMBS trusts must file: CMBS statistics.

Related: CMBS primer, how CMBS bonds are rated, CMBS vs RMBS, glossary.

Sources: S&P Dow Jones Indices, S&P CMBX Indices methodology (index composition, equal weighting, sub-index names); launch announcement, Finextra (2006). Trading mechanics summarized from standard CMBX credit default swap terms. No index levels or spreads are quoted here because no free primary source publishes them.