I am looking at a report by a bank and it say’s that their present value of CVA adjustment has decreased quite significantly…so basically, they’re saying that the value of the counterpart credit risk is smaller than in the beginning of the year. At the same time, the interest rates have increased.
The CDS’s (ItraxxMain 5Y, ITraxxFinancials 5Y and Itraxx XOver 5y) are all up this year by 17-73bps.
Does this make sense? Should the bank want to hedge it’s counterparty exposure by using CDS’s, they would be paying more for it than in the beginning of the year, not less…right?
Is there any other explanation to this?