How did Credit Suisse's debt impact CDS spreads?

Those comments sent shares of Credit Suisse plunging 25% on Wednesday to record lows, while CDS spreads tied to the bank's one-year and five-year debt surged to record highs. Credit default swaps are a form of insurance against issuers not making scheduled payments on their debt.

What is a CDS?

WHAT IS A CDS ANYWAY? Credit default swaps are derivatives that offer insurance against the risk of a bond issuer - such as a company, a bank or a sovereign government - not paying their creditors. Bond investors hope to receive interest on their bonds and their money back when the bond matures.

What is a credit default swap (CDS)?

Most CDS contracts are maintained via an ongoing premium payment similar to the regular premiums due on an insurance policy. A lender who is worried about a borrower defaulting on a loan often uses a CDS to offset or swap that risk. A credit default swap (CDS) is a type of derivative that transfers the credit exposure of fixed income products.

Is Credit Suisse in deep financial distress?

So frantic was the demand for the derivatives, known as credit-default swaps, that they spiked to levels that signal Credit Suisse is in deep financial distress — something unseen at a major global bank since at least the throes of the financial crisis.