Hi, I'm quite new to cds and I'm trying to understand how to get the 1y cds spread from the 5Y cds spread. The Reuters GFI30 page for the 18 of december gives the following information for BTA Bank (BTAS):BTAS 5Y 3000/4500 5x5BTAS 1/5 24%/31% 5x5BTAS 5/10 /-100 x5 while no data are present for the 1Y. Is there any way I can imply a spread for the 1Y?Thank you for help

You could assume a piece-wise flat hazard rate from the 5Y rate and price the 1Y deal accordingly.It seems odd that there is no 1Y CDS quote, have you tried Bloomberg?

AJSKJ, Thank you for your answer. Yes, there is a 1Y CDS quote in Bloomberg, but I'm interested in the methodology for calculating the 1Y spread form the reuter information (i.e. from both the 5Y spread and the 1/5 up front quote). You say to use a piece-wise flat hazard rate: more details? Thanks

In this case, assume the same constant hazard rate for all expires <5 yrs as derived from the 5 yr quote.

Ok, thanks. But does this mean that the 1/5 up front quote doesn't give me any information for what the spread might be for the 1Y?

Not sure on that one - when you bootstrap the 5 yr quote all the information from the upfront fee and running spread should be manifested in the hazard rate.

if you only have the 5 year u cannot know where one year should trade. I would also assume a flat hazard rate and price the 1y accordingly. but the term structure of the hazard rate might look very different from flat so you can never know.

The question is like asking someone how to get the one year interest rate given that you know the yield on a 5 year bond. You don't have enough information.However... Given that the 5y is 3750 mid, I would surmise the curve is inverted (i.e. the short end implies a higher default probability than the long end). Assuming a flat curve would be a dangerous assumption.

Thank you very much for your replies. I agree with Structurer that 'the question is like asking someone how to get the one year interest rate given that you know the yield on a 5 year bond' but, doesn't the up front quote give me some information on the 1Y spread?

Nope. Most upfront payment structures require an initial payment and then a risky annuity (e.g. 500 bp per annum). Again, you need a curve to discount this annuity stream and you only have one point at the 5y.

Am I missing something in this discussion? It seems to me that justarrived is looking to extract 1Y quote from a 5Y and and 1/5 curve quote, which is entirely feasible (Extracting 1Y quote from 5Y quote on it's own is just guesswork of course). The iffy part here is that the 5Y is quoted all running and 1/5 curve is quoted upfront. I think the best bet for extracting the 1Y quote here would be converting 5Y quote to uf+500 and then backing out the 1Y. Let's say 3000/4500 translates roughly to 67%/71%+500 at low recovery. With 1/5 curve at 27.5 mid, I would ballpark 1Y quote at 38%/45%+500.

Ah - I misinterpreted the BTAS 1/5 24%/31% 5x5 quote. I take it you mean this is a Forward quote, in that case I agree with StructCred, however I would still bootstrap the 1Y hazard rate based on the assumption that the par 1Y quote and the par 1/5Y quote will derive the par 5Y quote. Then it is up to you if you consider this to be an all in quote or and upfront quote with a running spread when you transform back from the hazard rate (at least then your risk neutral default probabilities will be consistent)....

Take a look at this paper - Longstaff-Schwartz 1995. the asset vol is a bit difficult to calibrate, I used the KMV merton iterative method to generate paths, thereby geting an estimate of the asset vol and the instantaneous correlation betyween IR and Assets. This model allows you to build a term structure given bond data for a certain tenor. There is quite a lengthy discussion on the shape factors of the term structure. I can't attach the paper as it exceeds the limits (when zipped) on this website. pm me and I can email you a copy or you might just google for it. " A simple approach to valuing Risky fixed and floating rate debt " july 1995