ISDA Report Concludes That Single-Name CDS Market Has "Positive Impact"

An ISDA-commissioned review of the "empirical academic literature" concluded that single-name credit default swaps ("CDS") have a "positive impact on the supply of credit to many reference entities underlying traded CDS, suggesting the ability of lenders to hedge their credit exposures can make them more willing to extend credit."

The review examined over 260 published academic articles and working papers. It determined generally that single-name CDS spreads:

• contain valuable information about the probability and severity of adverse credit events that an underlying reference entity may experience during the life of a CDS;
• reflect a risk premium that protection sellers demand in compensation for exposure to reference-entity-specific and systematic risks (both credit-related and non-credit-related);