Eurodollar University Credit Default Swaps Are SURGING, Here's What You Need To Know
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May 7, 2025 Credit default swaps on U.S. Treasuries are skyrocketing, signaling deepening stresses in the banking sector. The discussion dives into how these rising CDS premiums reflect banks' default risks, especially during times of government intervention. Investors are becoming increasingly wary of private credit markets, suggesting a tightening liquidity situation. The podcast highlights vulnerabilities in the financial system, particularly concerning European banks and their exposure to rising macroeconomic risks.
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CDS Surges Signal Bank Stress
- Rising credit default swap premiums on U.S. Treasuries mainly reflect banking sector stress, not U.S. government default risk.
- CDS premiums have surged to levels unseen since the 2023 banking crisis, signaling growing financial fragility.
CDS Are Hybrid Instruments
- Credit default swap prices embed both sovereign credit risk and interest rate risks tied to monetary policy.
- CDS premiums rise with treasury yields, reflecting complex hybrid risk beyond pure default concerns.
Sovereign CDS Reveal Bank Risk
- Sovereign CDS spreads provide timely insight into banking sector solvency and risk.
- Governments implicitly guarantee banks, causing sovereign CDS to lead bank CDS in signaling financial stress.