Physical Settlement CDS
Physical Settlement CDS is a credit-derivatives concept used to transfer, price or settle default and spread risk on a reference entity, credit index or defined tranche of credit exposure.
Physical Settlement CDS is a credit-derivatives concept used to transfer, price or settle default and spread risk on a reference entity, credit index or defined tranche of credit exposure.
How Physical Settlement CDS works
In practice, the economic effect depends on the underlying exposure, contract terms, valuation convention and the way collateral or financing is handled. For Physical Settlement CDS, small differences in conventions can materially alter carry, hedge performance or mark-to-market behavior.
Why it matters in markets
Physical Settlement CDS matters because fixed-income portfolios are exposed not only to the level of yields but also to curve shape, volatility, spreads and financing conditions. Derivatives are often the most direct way to transfer those risks.
How to interpret Physical Settlement CDS
Interpret Physical Settlement CDS by first identifying the risk being transferred, then separate directional exposure from curve, basis, volatility, funding and counterparty effects. Compare the hedge with the cash exposure on the same valuation date and under the same rate and spread assumptions.
Limits and context
Physical Settlement CDS is not standardized across every venue or contract. Documentation, curve construction, day-count rules, collateral terms and model choices can change valuation and hedge results, so the governing trade terms remain authoritative.
BondStats educational market reference. Definitions describe common market usage and are not investment, legal, accounting or regulatory advice.