I am reading a travel guide book on Europe and the author said that the yield on French 10y gvnt bond was close to 0% (like around 0.5%) while CDS protection was about 2% at the time. I am not familiar with CDS premium quote, only know it can refer to % premium to insure a certain tenor bond. It makes no sense the 2% premium cited is paid annually which would imply negative cost of capital holding the bond. The only way it can make sense is it is an upfront one-off premium for the entire 10 years. Is it what it is? How to read quotes like this ?
the question is: can you sell it at 2%? Second, french gov bonds trade at 1.8% yield for the 10y. IMHO the 20bps is just the dealer spread.
CDSs are valued at the present value of a payment and a protection leg and hence it can happen that either the buyer or seller have to make an upfront payment. Depending on quotation, CDSs can be quoted in terms of a credit spread above comparable bonds or in terms of an "insurance premium", which reflects the probability of default over an agreed term. https://www.cfainstitute.org/en/mem...luation of a CDS is,buyer in event of default.