Credit default swaps (CDS), a type of derivative financial instrument, are tradable insurance contracts used to hedge against default by a debtor. The lower the hedging premium (CDS level), the lower the market considers the issuer’s default risk to be. CDS are regarded as possible indicator for determining the credit margin when raising debt capital.
The trend in five-year Bayer CDS against the five-year iTraxx Europe index is shown in the following chart. The iTraxx Europe index includes the CDS of 125 major European companies with investment-grade ratings – i.e. a high level of creditworthiness – from various sectors, including financial institutions.
in basis points | As of: March 31, 2012 |
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