The CDS indicator

The correlation between the behavior of credit default swaps and cash bonds has given investors a number of opportunities to exploit, as John Caserta discovers

Credit default swaps have emerged as a useful tool in determining investment strategies in the cash bond market. Research has shown that despite several deviations, these credit derivative instruments generally lead spread performance for cash bonds. As single-name default contracts have developed as tools to anticipate sentiment in the debt market, new research by Lehman Brothers suggests that portfolio credit default swap products, such as the tradable Dow Jones CDX indices, provide an