SOGEI website background

The relationship between CDS and bond spreads

The relationship between CDS and bond spreads

Understanding the drivers of basis between Credit Default Swaps (CDS) and bond spreads is important in correctly interpreting prices from each market. This review discusses the pricing methodology of the basic credit default swap, the equivalent spread measure for corporate bonds, considers how CDS and bond spreads relate to one another, and how CDS may on occasion drive bond spreads.