The credit default swap (CDS) became a buzzword during the financial crisis as their prices soared and some firms that wrote them had to be bailed out in part because they would never be able to actually pay them out if default actually occurred (think AIG). Below we provide a chart of an index that measures CDS prices for 125 North American investment grade credit vehicles. As shown, the index rose from 50 to more than 250 from September 2007 to early 2009. Since then, however, the index has declined 38.86% as the S&P 500 has risen 48%. While the drop has been significant, it's still above pre-Lehman bankruptcy levels. While many investors are looking beyond the problems that occurred last fall and winter, credit market traders have not yet priced in a full recovery on Wall Street.
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