Safe-Haven CDS Premiums

82 Pages Posted: 12 Dec 2014 Last revised: 26 Jan 2018

See all articles by Sven Klingler

Sven Klingler

BI Norwegian Business School

David Lando

Copenhagen Business School - Department of Finance

Date Written: January 26, 2018


Credit Default Swaps can be used to lower capital requirements of dealer banks who enter into uncollateralized derivatives positions with sovereigns. We show in a model that the regulatory incentive to obtain capital relief makes CDS contracts valuable to dealer banks and empirically that, consistent with the use of CDS for regulatory purposes, there is a disconnect between changes in bond yield spreads and in CDS premiums especially for safe sovereigns. Additional empirical tests related to volumes of contracts outstanding, effects of regulatory proxies, and the corporate bond and CDS markets support that CDS contracts are used for capital relief.

Keywords: CDS premiums, Capital charges, CVA, CDS-bond basis

JEL Classification: F34, G12, G15

Suggested Citation

Klingler, Sven and Lando, David, Safe-Haven CDS Premiums (January 26, 2018). Available at SSRN: or

Sven Klingler (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442

David Lando

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3, SOL/A4.17
Copenhagen, Frederiksberg 2000

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