[Verse 1] In the market's maze where risk resides Credit default swaps take their place Three pillars hold the pricing guide Default probability sets the pace Recovery rates when bonds collapse Credit spreads reveal the gaps [Chorus] S-P-R-C, spread plus recovery Default risk is what we see When the borrower can't repay CDS premiums light the way Higher spread means higher fee Lower recovery, costly spree [Verse 2] Corporate bonds trade wide or tight Their spreads whisper danger's call When credit quality takes flight Bond spreads and CDS enthrall Parallel paths they often trace Arbitrage keeps them in their place [Chorus] S-P-R-C, spread plus recovery Default risk is what we see When the borrower can't repay CDS premiums light the way Higher spread means higher fee Lower recovery, costly spree [Bridge] Forty cents recovered means sixty lost Premium climbs to match the cost Investment grade stays calm and low Junk bonds make the premiums grow [Verse 3] Reference entity's credit health Determines what protection's worth Term structure maps the stealth Of time's effect on default's birth Longer maturities compound fear Making annual payments dear [Chorus] S-P-R-C, spread plus recovery Default risk is what we see When the borrower can't repay CDS premiums light the way Higher spread means higher fee Lower recovery, costly spree [Outro] Bond spreads guide but CDS leads Protection buyers pay for deeds Three factors dancing in the night Pricing swaps with mathematical sight
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