Trading CDS I experienced something unexpected:
- A half year ago I sold protection on a single name at a spread of 190bp
- The coupon was 5% and the contract had a maturity of five years.
- Using Bloombergs CDSW function I noticed that the SpreadDV01 was ~480€
- I paid an upfront of ~141k (+ 4k accrueds)
A half year later:
- the CDS was quoted with a spread of 160bp. I thought "Great! Thats a profit of 14k€ (=30bp*480€) addional to my received premiums of 25,000€ (5%*0,5*1MM). So a total PnL of +39k"
- When I was validating the position I discovered that my position only gained ~2.6k on value (the upfront I would receive now is 143,6k) addtional to my collected premium of 25k
Besides how is this possible my questions are:
- why the SpreadDV01 failed to predict my return on this position?
- are other there tools used by practitioners to approximate the total PnL of a CDS position?
Thank you in advance for your answers.