The index.

The settlement number comes from the professional credit market's own benchmark. This page says what that benchmark is, what the published level measures, and how to read it.

The reference market.

CDX.NA.HY is the standard index of North American high yield credit: a basket of one hundred credit default swaps on the riskiest well known corporate borrowers, maintained under published rules and traded by dealers in the hundreds of billions per year. When markets talk about credit stress in US high yield, this is the instrument they trade. A new series of the basket is created every March and September; the membership rules, the roll, and the mechanics are public.

The published level.

Our market does not settle on the index's trading price, which hovers near 100 and mixes in interest rate noise. It settles on the change in a return index computed from it by the administrator: a daily level tracking what buying protection on the basket would have earned. That level rises when credit stress rises, through any of three doors: spreads widen because fear reprices the whole market, a borrower in the basket defaults and the loss is settled by public auction, or the series rolls and the methodology carries the change inside the level. It drifts down in calm years, because protection costs money when nothing goes wrong.

How to read it.

• The level is a running score of credit pain. Up means stress is being paid for; down means calm is winning.
• The settlement number is the percentage change in that level over the window, each endpoint averaged over five publication days.
• Because the level publishes daily, the running read is visible before settlement: today’s level divided by the window’s starting level, minus one. A window that opened at 1,000 and prints 988 today reads as negative 1.2 percent.
• A calm two year window typically prints a modest negative number; a crisis window a large positive one. 2008 scale stress reached the mid twenties in our historical study.

Why this number and not another.

Three candidates fail. The index trading price is one day's quote and forgets everything between the endpoints. Realized default losses are the accounting truth but arrive quarters late, so a market settling on them would trade dead information. A survey or committee number would put a judgment call inside settlement. The return index contains the whole window, repricing, defaults, and carry, in one daily published level computed by an independent administrator under public methodology. Nobody in this market can touch it.

Who publishes it.

The index family is administered and calculated independently of RAVA; we read the published level and run the arithmetic in the settlement rule. The listing terms for each window name the exact series and methodology version that settlement will read, fixed before trading opens.