Covid-19: CDS spreads of Indian firms widen amid economic uncertainties

The credit default swaps (CDS) of Indian firms, mostly banks, have increased in the thinly traded markets overseas.
 

CDS is a form of an insurance that investors buy to protect their investments in bonds.
 

The increase in CDS spreads indicates an increasing risk of default, but not necessarily that bond investors would default.
 

India has very few issuers of overseas bonds. In comparison, almost every other country has many more overseas bonds.

Spreads on all CDS instruments have increased after the Covid-19 pandemic, as recession fears loom large.
 

A point to note here is that CDS spreads have widened the most in the last three months. Tata Motors, for example, has seen its CDS spread go up to 824.03 basis points, from 275.2 three months ago. State Bank of India’s bond issued from its London subsidiary has also seen its CDS spread jump from its three month low of 71.2 basis points to 334.7 at its peak. It has now settled at 241.41.

Similarly Reliance Industries saw its spread move from 73.1 basis points to 306.4 basis points, but has narrowed to 243.71 basis points now.