Questions about CDS quotes

Discussion in 'Fixed Income' started by blueraincap, Jul 26, 2022.

  1. 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 ?
  2. MrMuppet


    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.
  3. M.W.


    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. of a CDS is,buyer in event of default.

  4. M.W.


    Not a dealer spread but the spread above the sovereign bond yield.