3Y Default Probability Singapore

Probability of Default (PD) based on CDS is a market-based financial metric representing the market's implied assessment of the probability of a credit event occurring on a debt obligation. Unlike a CDS itself, this metric is not a tradable instrument but is calculated from the quotes (spreads) of the corresponding credit default swaps. For the calculation, in addition to the CDS spread, an assumed proportion of debt recovery in the event of a default (the Recovery Rate) is also used. In essence, the CDS spread is the price of insuring against default. The higher the market assesses an issuer's default risk, the higher the CDS spread on its debt will be, and consequently, the higher the calculated probability of default will be. CDS-based PD is a dynamic, continuously updated indicator of credit risk that reflects the collective sentiment of investors. It is used for real-time creditworthiness assessment, portfolio risk management, pricing debt instruments, and as a leading indicator of potential financial distress for a company or country.