Spread ⇄ default probability calculator
The credit triangle.
Interactive: spread ⇄ default probabilityMedium
Turn a CDS spread into the market's implied default probabilities — the translation every credit analyst does in their head.
- Implied hazard rate
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- P(default ≤ 1y)
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- P(default ≤ 5y)
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- Expected loss p.a.
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Flat-hazard credit triangle — the market's own quoting shortcut (ISDA standard model uses exactly this skeleton). Risk-neutral probabilities include risk premia; real-world default rates run lower.
The idea behind it
This calculator belongs to Credit Derivatives, where the mechanism it computes is explained step by step, with the formula, what each input means and where the simple model stops being right. Everything is computed in your browser; nothing you type is sent anywhere.
Instruments it applies to
- Credit Default Swap — Insurance on a borrower's default — and the market's sharpest real-time gauge of credit fear.
- CDS Index — Default protection on 100+ names in one trade — the S&P 500 of credit risk.
- Credit-Linked Note — A bond with a CDS hidden inside: earn an enhanced coupon for carrying someone else's default risk.
- CLO — Leveraged corporate loans, tranched into everything from AAA paper to private-equity-style equity.
- Asset Swap — A bond with its interest-rate risk surgically removed, leaving pure credit. The package that turns any bond into a floating-rate note and defines the spread the market quotes.
- Leveraged Loan — The senior, secured, floating-rate sibling of the junk bond — and the raw material every CLO is built from.
- CDO & Synthetic Tranches — Slicing a pool of credit risk into layers of first-loss and last-loss — the machine that concentrated 2008, and the tranche market that outlived it.
- CDS Option — An option on the price of credit protection — the instrument that lets you be long the fear of a default without paying for it every day.
More calculators from Credit Derivatives
- Spread-duration P&L — the credit trader's mental arithmetic.
- Tranche loss calculator — where a portfolio loss lands in the stack.
- CDS–bond basis — the classic relative-value gap.
- Expected loss and the breakeven spread — default probability times the loss when it happens.
- Altman Z-score — the 1968 distress screen, still in use.
- Downgrade risk, not just default risk — most credit loss is the first, not the second.
- Distance to a contingent-convertible trigger — the headroom, and why the trigger is rarely what fires.