§ 01
CDS Premium = Notional × Spread (bps) / 10,000
§ 02
| CDS Spread | Implied Rating | Market View |
|---|---|---|
| < 50 bps | AA/AAA | Very low default risk |
| 50–150 bps | A/BBB | Investment grade |
| 150–400 bps | BB/B | High yield territory |
| 400–1000 bps | CCC | Distressed |
| > 1000 bps | Default likely | Near-default or restructuring expected |
§ 03
CDS spreads move faster than credit ratings because they’re market-priced. When CDS spreads spike but the rating hasn’t changed, the market is ahead of the rating agency — this is where early warning value lies.
§ 04
Track CDS spreads for major financial institutions during periods of market stress. They serve as a real-time barometer of systemic risk.
§ 05
A company’s CDS spread widens from 100 to 400 bps over 2 months while its bonds yield only 5.5%. What does the CDS market know?
§ 06
§ 07
You own $100M of AAA-rated CLO. During market stress, what's the WORST-case concern?
Five questions · AI feedback
Sit with the ideas.
A company's 5-year CDS trades at 300 bps. Assuming 40% recovery rate, what is the market-implied annual probability of default?
Why: