Credit Suisse’s capricious debt is a bet for the bold

LONDON, Oct 6 (Reuters Breakingviews) – Credit Suisse’s (CSGN.S) debt derivatives are still sending scary signals, even though its equity isn’t.

The $11 billion Swiss bank’s share price more than recovered from a selloff on Monday, which followed a weekend in which executives sought to reassure counterparties about its financial health . Yet its credit default swaps (CDS), contracts used to speculate on a company defaulting on its debt, are still oddly high, despite the lack of bad news. Five-year swaps were trading at around 360 basis points on Thursday, down from around 200 basis points in mid-September, according to data from Refinitiv. The latest price is more than double the level of the 2020 pandemic. Credit Suisse’s one-year CDS, meanwhile, were quoted at around 600 basis points on Thursday morning, according to a trader.

There are several explanations. Trade counterparties may use swaps to hedge their exposure to the bank. Low volumes in the CDS market mean that small trades can trigger big moves. Still, the more red CDS levels flash, the more likely Chairman Axel Lehmann will have to raise capital. This could dispel fears about the bank’s health and see its CDS calm down. Investors willing to bet that Credit Suisse can survive would make handsome gains. (By Neil Unmack)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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