Credit Default Swap contract for BP hit record high of 380 basis points (up from 45 bp).

[Statistical]

That means speculators are putting odds of BP defaulting on bond obligations within next year at 3.8%.

On edit: The contract is a 5 year lock up (like buying life insurance for 5 years in advance) so it is more like an aggregate 19% chance of default in next 5 years (3.8% annualized).

[dixiegrrrrl]

1. ty for 'splaining that. Seriously.

In April, BP stock was 60.
today it is 29.00 and struggling to stay at that price.

[Statistical]

3. CDS is far more indicitive of financial health of a company.

Stockholders are first in line to get wiped out. They take greatest risk, get greatest reward.
If there isn't sufficient money they suffer first and hardest.

Bondholders will always get paid unless company is insolvent.
Thus CDS spread is a better indication of what bond holders (very conservative investors) feel the risk of losing everything is.

Currently bondholders are willing to pay 3.8% per year (on a bond likely yielding only 5%) and lock that in for 5 years in return for protection from default.

Given that was 0.45% before the gusher that shows what bond holders are thinking (likelyhood of company wide default has increased by a magnitude).

[yodoobo]

2. only 3.8% chance?

Wow that's alot lower than I would have guessed.

[Statistical]

4. Well technically more than that.

because contract is for 5 years.
So more like 19% in the next 5 years (3.8% annualized).

[blindpig]

5. What it means is...

that the capitalists are betting that BP will not suffer any major consequences for their act of ecocide.

Kill Capitalism

[Statistical]

6. Another way to look at it.

Is capitalist think the likelyhood that BP defaults in next 5 years has increased by 744%.