Browse Financial Instruments

Single-Name CDS

A single-name CDS is a credit default swap referencing one borrower or issuer rather than an index or basket.

Introduction

Single-Name Credit Default Swaps (CDS) are financial derivative contracts that serve as a form of insurance against the default of a specific entity, typically a corporation or sovereign state. A single-name CDS involves a buyer who makes periodic payments to a seller in exchange for compensation if the reference entity defaults on its obligations.

Types

Single-Name CDS can be categorized based on:

  • Reference Entity Type: Corporate CDS, Sovereign CDS
  • Credit Event Specifications: Bankruptcy, Failure to Pay, Restructuring
  • Maturity: Typically ranging from 1 to 10 years

Detailed Explanation

A single-name CDS operates as follows:

Structure

  • Parties Involved:

    • Protection Buyer: Pays regular premiums.
    • Protection Seller: Receives premiums, compensates in default event.
  • Premium Payments: Made by the protection buyer, generally quarterly.

  • Credit Event: Defined circumstances under which a payout occurs, such as default or restructuring.

  • Settlement:

    • Physical Settlement: The protection seller buys the defaulted asset from the buyer.
    • Cash Settlement: The protection seller pays the buyer the difference between the par value and the market value of the defaulted asset.

Mathematical Models

CDS pricing involves complex models. The following is a simplified version:

$$ \text{CDS Spread} = \frac{(1 - \text{Recovery Rate}) \times \text{Probability of Default}}{1 - \text{Probability of Default}} $$

Importance

  • Risk Management: Helps investors hedge against credit risk.
  • Price Discovery: Provides insights into the creditworthiness of entities.
  • Arbitrage Opportunities: Traders exploit price differences between CDS and underlying bonds.

Practical Use

For finance readers, Single-Name CDS is useful when reviewing contract payoff, notional exposure, collateral, settlement, hedge objective, and counterparty risk. Single-Name CDS connects the definition to measurement, timing, risk, documentation, and comparability decisions instead of leaving the concept as isolated vocabulary.

Practical Example

If Single-Name CDS appears in an analysis file, compare the stated amount, rate, right, or obligation with the supporting contract, account, market data, or policy. Then identify how Single-Name CDS changes who benefits, who bears the risk, and which financial statement, valuation, or cash-flow line changes.

Decision Check

Ask whether Single-Name CDS changes amount, timing, probability, liquidity, rights, reporting, or control evidence. If it does not, keep Single-Name CDS as context; if it does, tie it to the recommendation, valuation input, control step, disclosure, or risk decision.

Watch For

  • Do not rely on Single-Name CDS without checking the instrument, account, contract, or rule behind it.
  • Terms that sound similar to Single-Name CDS can imply different rights, cash flows, or accounting treatment.
  • Small wording differences around Single-Name CDS can shift risk, timing, or classification.

Interpretation Note

Interpret Single-Name CDS by mapping it to price formation, contract rights, trading constraints, risk transfer, and settlement mechanics.

Finance Context

In finance, Single-Name CDS matters when it affects valuation, execution, exposure measurement, margin, liquidity, or the reliability of a hedge.

Common Confusion

Do not confuse Single-Name CDS with a standalone trading recommendation. It is a market concept that still depends on price, timing, liquidity, and risk limits.

Where It Shows Up

You will see Single-Name CDS in trade tickets, exchange rules, broker notes, risk reports, option chains, fixed-income screens, and market commentary.

Analyst Takeaway

Treat Single-Name CDS as important when it changes how a position is priced, traded, hedged, funded, or settled.

Finance Use Case

Use Single-Name CDS when a derivatives or instrument decision depends on payoff shape, exercise rights, maturity, settlement, margin, collateral, counterparty exposure, or hedge effectiveness. The practical task for Single-Name CDS is to convert contract language into cash-flow and risk behavior.

Review Single-Name CDS through three questions: what event triggers payment or delivery, who has optionality or obligation, and how value changes when the underlying price, rate, spread, volatility, or time changes. If Single-Name CDS changes exposure, hedge accounting, liquidity, close-out rights, or stress losses, Single-Name CDS belongs in the risk model and trade documentation review rather than only in a glossary.

Decision Impact

For Single-Name CDS, the decision impact is whether the contract changes payoff, hedge behavior, margin, collateral, valuation, settlement, or close-out exposure. If no trigger, input, or counterparty right changes, Single-Name CDS should not be treated as a separate risk driver.

Analysis Boundary

The analysis boundary for Single-Name CDS is crossed when payoff, optionality, valuation input, margin, collateral, settlement, hedge behavior, and close-out rights do not change. Then it is contract vocabulary rather than a separate risk exposure.

Practical Signal

The practical signal for Single-Name CDS is a changed contract exposure: payoff, coupon, maturity, settlement, collateral, margin, exercise right, close-out treatment, or valuation input. When that signal appears, map Single-Name CDS to the instrument clause and pricing effect.

The evidence link for Single-Name CDS is the term sheet, indenture, prospectus, confirmation, clearing record, collateral schedule, pricing model, or payoff table. Without that link, Single-Name CDS should not support a cash-flow, valuation, margin, or rights conclusion.

Decision Marker

The decision marker for Single-Name CDS is the moment contract economics change: payoff, coupon, maturity, collateral, exercise, conversion, settlement, margin, close-out rights, or valuation input. If those economics are unchanged, do not treat it as a new exposure.

Source Check

The source check for Single-Name CDS is the instrument document: prospectus, indenture, confirmation, term sheet, clearing record, collateral schedule, pricing model, or payoff table. Prefer contract evidence over instrument shorthand when Single-Name CDS affects rights, cash flow, or valuation.

  • Credit Event: An event triggering a payout, such as default.
  • Recovery Rate: The percentage of the asset’s value recovered in case of default.
  • Maturity: Related finance concept that helps place Single-Name CDS in context.
  • Price Discovery: Related finance concept that helps place Single-Name CDS in context.
  • Bond Default Swap: Related finance concept that helps place Single-Name CDS in context.

Review Evidence

Review evidence for Single-Name CDS should make the financial-instrument evidence traceable, not just definitional. For Single-Name CDS, tie the evidence to the contract, security master record, payoff terms, pricing source, and settlement instructions and explain why that evidence is reliable enough for the finance decision.

Before relying on Single-Name CDS, document the decision context: the trade date, valuation date, maturity, reset date, and settlement cycle. Keep the Single-Name CDS evidence trail visible: independent price verification, counterparty record, collateral status, and accounting classification. In Derivatives work, Single-Name CDS matters when it changes cash flows, fair value, risk exposure, hedge treatment, or balance-sheet presentation.

  • Source: cite the record, filing, contract, model input, system log, or policy that supports Single-Name CDS.
  • Timing: record when Single-Name CDS is measured: date, period, jurisdiction, market condition, or processing window that could change the financial conclusion.
  • Boundary: distinguish Single-Name CDS from nearby concepts that require different evidence or support a different finance decision.
  • Decision use: identify the approval, valuation input, allocation step, control, disclosure, or risk decision affected if the evidence for Single-Name CDS were different.

The practical risk for Single-Name CDS is that instrument terms are unreliable unless the legal terms, payoff profile, valuation source, and settlement facts are aligned. If those facts are unavailable, keep Single-Name CDS in the explanatory layer instead of treating it as decision-grade evidence.

Decision Workflow

Use Single-Name CDS as a decision workflow, not a static glossary label: define the finance meaning, verify the evidence, and identify which conclusion changes. Start by linking Single-Name CDS to contract payoff, pricing source, settlement term, counterparty exposure, and accounting classification. Only after those checks should Single-Name CDS influence an instrument analysis.

For Single-Name CDS, confirm the source record, the date or jurisdiction that could change the answer, and the finance decision affected if the evidence were wrong. If those checks are incomplete, keep Single-Name CDS as explanatory context rather than a decisive input.

FAQs

How is the premium in a single-name CDS determined?

It is determined by the perceived credit risk of the reference entity and market conditions.

Can a single-name CDS be traded?

Yes, they are often traded in the over-the-counter (OTC) market.
Revised on Sunday, June 21, 2026