Questions about CDS quotes

[blueraincap]

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 ?

 

[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.

 

[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.

https://www.cfainstitute.org/en/mem...luation of a CDS is,buyer in event of default.

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 ?

 

[M.W.]

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

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.