- Wealth PMS (50L+)
Credit Default Swaps on ICICI are trading at 934 bps, according to Markit.
Credit default swaps are basically insurance against defaults. What the 934 means is that to insure bonds worth 10 million dollars, people are paying 9.34%, or 934,000 dollars. Typically when the CDS trades at high levels it indicates either highly illiquid markets, or that people are losing trust in the company (or a higher expectancy of default). This doesn’t mean ICICI will default, just that it’s CDS is trading at such levels (even Lehman’s were trading at 700 bps a few months prior to their bankruptcy – at a time when 700 was considered obscenely high. Today, 900 is perhaps less dramatic)
Interestingly, they’ve come down 300 basis points from two weeks ago – when the spread was over 12%! Let’s see – if it comes down to less than 300 that means things are getting better.
Disclosure: No positions. And this is just info – not to suggest ICICI is defaulting, going bust or anything of that sort.