Understanding the superior return of CDS indices

A major challenge in high yield investing is the limited liquidity of the high yield corporate cash bond market. Robeco’s Dynamic High Yield strategy provides high yield exposure by investing in government bonds and highly liquid credit default swap (CDS) indices. This combination mimics the high yield exposure accurately with the benefit that CDS indices are much more liquid than high yield bonds. CDS indices have also delivered a structurally higher long-term return than cash bond indices with a lower risk. Since inception of the fund in April 2014 the CDS indices have delivered an annual return 6.6% compared to 4.3% of cash bond indices.

Our main research question is: is this difference structural? We have three ideas that may explain the difference backed by research of Barclays in the recent years:

  1. Higher carry because of more roll-down
  2. Not subject to the negative convexity of callable bonds
  3. More diversified composition over sectors and issuers
Are you interested?

Let us know your motivation and send it together with your CV and list of grades to SQ@robeco.nl.

We want to further investigate these ideas in the internship and to analyze whether these can explain the differences. We also want to better understand why these differences exist in the first place. Perhaps other ideas will also pop up from the research and help to further strengthen our understanding of the CDS derivatives and why investors should use these instruments to get exposure to high yield.


Ben Dor, A. and J. Guan, 2017, Hedging Systematic Risk in High Yield Portfolios with a Synthetic Overlay: A Comparative Analysis of Equity Instruments vs. Credit Default Swaps, Journal of Fixed Income 26(4), 5-24.

Desclée, A., Maitra, A. and S. Polbennikov, 2015, Synthetic vs Corporate Bond Indices: Why CDX and iTraxx have outperformed bond indices, Barclays Research.

Desclée, A., Maitra, A. and S. Polbennikov, 2015, Why Did CDX HY Outperform Barclays HY Bond Index?, Barclays Research.

Patel, J. and E. Gross, 2016, CDX versus Cash – Mostly a Rates Story, Barclays Research

Winnicki, Willemann, Martin, Maitra, 2015, Crossover outperformance vs. bonds – past and future, Barclays Research.