Safe Haven CDS Premiums

Sven Klingler, David Lando

Research output: Working paperResearch


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.
Original languageEnglish
Place of PublicationLondon
PublisherCentre for Economic Policy Research
Publication statusPublished - 2018
SeriesCentre for Economic Policy Research. Discussion Papers


  • Capital charges
  • CDS premiums
  • CDS-bond basis
  • CVA

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