Credit Default Swap Market Forecast and Analysis Forecast, 2023-2032 (2024)

11-27-2023 02:46 PM CET |

Press release from: Allied Market Research (AMR)

Credit Default Swap Market Forecast and Analysis Forecast, 2023-2032 (1)

A credit default swap (CDS) is a contract that allows two or more parties to transfer the credit risk associated with fixed income products. In a CDS, the buyer of the swap makes payments to the seller of the swap until the contract's maturity date. In exchange, the seller agrees to pay the buyer with security's value as well as all interest payments. Therefore, the increase in payment ticket size, easy accessibility of swaps, and the cost saved by the consumer is expected to boost the market growth of the credit default swap market in the near future.

The global credit default swap market is segmented on the basis of type, end user, and region. Based on type, the market is divided into municipal bonds, emerging market bonds, mortgage-backed securities, corporate bonds, and others.

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The Rise in Demand for Cash Alternatives

According to a recent study, advisers are seeing an increase in demand for fixed income investments and clients want low-risk investments with higher returns than traditional cash-based swaps. The credit swap market reduces the risk of overspending because there is a time limit imposed. These swaps can be loaded quickly and easily through a variety of platforms, including bank account transfers, direct deposit, or cash, both online and in person.

Furthermore, corporations are constantly looking for cash alternatives to manage their day-to-day transactions. According to the Federal Deposit Insurance Corporation, 6.5 percent of U.S. households were unbanked in 2018, implying that 8.4 million U.S. households are still operating in the economy without a bank account. Credit default swap cards enable unbanked consumers to conveniently access essential payment services. The company can also use this card to track expenses, fund cards, and details of interest amounts in real-time. All of these factors are fueling the market growth.

Increase in the Number of Internet Users and Developments in the E-commerce Industry

The rapid growth of the e-commerce industry has compelled businesses to use credit default swaps rather than cash transactions in their wallets. According to several banks, the credit default swaps segment has been one of the key factors driving bills payable, short-term credit, and prepaid card sales globally.

For example, the Dubai payments industry is undergoing significant change, with a large number of consumers abandoning their swap platforms in favor of a new payment tool known as the "credit default swap market". These cards can be used in place of credit default swaps and are easily accessible to non-banked businesses. As a result, the dominance of the market is expected to grow which creates lucrative opportunities for the market.

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Key Benefits of the Report

This study presents an analytical depiction of the credit default swap market forecast along with the current trends and future estimations to determine the imminent investment pockets.

The report presents information related to key drivers, restraints, and opportunities along with a detailed analysis of the credit default swap market share.

The current market is quantitatively analyzed to highlight the credit default swap market growth scenario.

Porter's five forces analysis illustrates the potency of buyers & suppliers in the market.

The report provides a detailed credit default swap market analysis depending on the present and future competitive intensity of the market.

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COVID-19 Scenario Analysis

The COVID-19 outbreak has had a moderate impact on the growth of the credit default swap market, as the adoption of swaps has increased in the face of unprecedented circ*mstances. The COVID-19 has significantly fueled the growth rate of the market. It also reduced human errors in recoding and summarizing transactions. For instance, the Reserve Bank of Australia, in its recent publication, stated that the COVID-19 may have only furthered the industry's shift toward default swaps.

In addition, the market players have introduced innovative credit swaps products by using the advance electronic platform.

Credit Default Swap Market Report Highlights

By Type

Municipal Bond
Emerging Market Bonds
Mortgage-Backed Securities
Corporate Bonds
Others

By End User

Individual
Enterprises

By Region

North America (U.S., Canada, Mexico)
Europe (UK, Germany, France, Spain, Italy, Rest of Europe)
Asia-Pacific (China, Japan, India, Australia, South Korea, Rest of Asia-Pacific)
LAMEA (Latin America, Middle East, Africa)

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Allied Market Research (AMR) is a full-service market research and business-consulting wing of Allied Analytics LLP based in Wilmington, Delaware. Allied Market Research provides global enterprises as well as medium and small businesses with unmatched quality of "Market Research Reports Insights" and "Business Intelligence Solutions." AMR has a targeted view to provide business insights and consulting to assist its clients to make strategic business decisions and achieve sustainable growth in their respective market domain.

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Credit Default Swap Market Forecast and Analysis Forecast, 2023-2032 (2024)

FAQs

What is the credit default swap market in 2023? ›

The rate of central clearing of credit default swaps (CDS) has continued to trend upwards. It reached 70% at end-June 2023, the highest level on record and up more than 4 percentage points from a year earlier (Graph 4, blue line).

What is the outlook of the CDS market? ›

Overall, the US CDS market is forecast to grow at a CAGR of 9.3% and revenues will top $6.47 billion in the US by 2024. Yet this projection could be conservative when rapid evolutions in medical technology and healthcare regulation are taken into account.

How do you calculate the market value of a credit default swap? ›

Valuation of a CDS is determined by estimating the present value of the payment leg, which is the series of payments made from the protection buyer to the protection seller, and the present value of the protection leg, which is the payment from the protection seller to the protection buyer in event of default.

What does a CDS spread tell you? ›

The "spread" of a CDS is the annual amount the protection buyer must pay the protection seller over the length of the contract, expressed as a percentage of the notional amount.

What was wrong with credit default swaps? ›

One of the risks of a credit default swap is that the buyer may default on the contract, thereby denying the seller the expected revenue. The seller transfers the CDS to another party as a form of protection against risk, but it may lead to default.

Who owns credit default swaps? ›

In a CDS, one party “sells” risk and the counterparty “buys” that risk. The “seller” of credit risk – who also tends to own the underlying credit asset – pays a periodic fee to the risk “buyer.” In return, the risk “buyer” agrees to pay the “seller” a set amount if there is a default (technically, a credit event).

Are CDs safe if the market crashes? ›

Are CDs safe if the market crashes? Putting your money in a CD doesn't involve putting your money in the stock market. Instead, it's in a financial institution, like a bank or credit union. So, in the event of a market crash, your CD account will not be impacted or lose value.

Are CDs good to buy during a recession? ›

During the Great Recession and its aftermath, the stock market went through turbulent shifts, resulting in great losses for some stockholders. CDs are one option that can help protect your investment from times of turmoil by providing a stable income.

Are CDs safe during a recession? ›

The Bottom Line. If you're wondering where to put your money in a recession, consider a high-yield savings account, money market account, CD or bonds. They can provide safe places to store some of your savings.

What is a credit default swap for dummies? ›

In a credit default swap contract, the buyer pays an ongoing premium similar to the payments on an insurance policy. In exchange, the seller agrees to pay the security's value and interest payments if a default occurs.

How long is a credit default swap good for? ›

The credits referenced in a CDS are known as “reference entities.” CDS range in maturity from one to 10 years although the five-year CDS is the most frequently traded.

How big is the credit default swap market? ›

CDS help to mitigate the risk by providing a form of insurance. The CDS market is worth around $3.8 trillion, according to the International Swaps and Derivatives Association (ISDA).

What is probability of default CDS spread? ›

Probability of Default (1 yr) = CDS spread (annualized) / Loss Severity As an example, if assuming a 60% loss severity (or 40% recovery rate), then an annual CDS spread of 120 bps would imply a one-year probability of default of 2.0%.

What is an example of a credit default swap? ›

Credit Default Swap Examples

A company issues a bond; the bondholders bear the risk of non-payment. To shift this risk exposure, bondholders could buy a CDS from a third party. This will shift the burden of risk from the bondholder to the third party.

What is the credit default swap index? ›

The Credit Default Swap Index (CDX) is a benchmark index that tracks a basket of U.S. and emerging market single-issuer credit default swaps. Credit default swaps act like insurance policies in the financial world, offering a buyer protection in the case of a borrower's default.

What is the new credit default swap? ›

A credit default swap (CDS) is a financial derivative that allows an investor to swap or offset their credit risk with that of another investor. To swap the risk of default, the lender buys a CDS from another investor who agrees to reimburse them if the borrower defaults.

What is the size of the CDS market? ›

At year-end 2022, CDS open interest at four major CCPs was about $2.9 trillion and initial margin was $70.1 billion. 87.4% of index CDS traded notional required to be reported under US Commodity Futures Trading Commission reporting rules was cleared in the first quarter of 2023.

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