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I am reading the ISDA document here regarding the change to roll conventions on CDS that came in at the end of 2015 and in particular section 11 relating to the short end tenors. Additionally, I am reading the ISDA standard CDS examples document here around the standardisation of CDS coupons.

I think that my question is best asked in the context of an example. On Thu 19 Mar 2020, we receive both 3M and 6M CDS quotes from our market data provider.

For the 3M quote, using the CDS 2015 roll conventions, the maturity date is Fri 20 Mar 2020. The second document referenced above has the following statement in point 5 in the Standardizing coupon dates section:

A trade's first coupon payment date is determined by the trade date (T): it's the first coupon payment date after T+1 (calendar, unadjusted). This is consistent with the first coupon dates of, eg, CDX.

If I took this literally, I would get a first coupon payment date of Mon 22 Jun 2020 on the 3M CDS above which would not make sense. Is it correct to ignore this here and to assume that the 3M CDS has a fee leg, with a single coupon, with accrual starting on Fri 20 Dec 2019 and ending on Fri 20 Mar 2020 (inclusive of Fri 20 Mar 2020)?

For the 6M quote, the CDS 2015 unadjusted maturity is Sat 20 Jun 2020. Using the statement quoted above, the first and only coupon payment would be on Mon 22 Jun 2020. In other words, is it correct to assume that the 6M CDS traded on Thu 19 Mar 2020 has a fee leg, with a single coupon, with accrual starting on Fri 20 Mar 2020 and ending on Sat 20 Jun 2020 (inclusive of Sat 20 Jun 2020) with payment on Mon 22 Jun 2020?

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You are correct. The premium leg of a 3 months SNAC-like CDS has one coupon. In your example, it accrues since December 20 2019 and ends at maturity on March 20, 2020.

(Please observe that SNAC-like CDS (any, not just 3 months) provides protection on maturity date (if a credit event happens exctly on that day, which sometimes happens) but there isn't a corresponding extra day of accrued premium.)

Likewise a 6 months SNAC-like CDS has two coupons. In your example, the first coupon accrues since December 20 2019 and is paid on March 20, 2020; the second coupon accrues since March 20, 2020 and ends at maturity on June 20, 2020.

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  • $\begingroup$ Thanks Dimitri. On the maturity date protection, doesn't the final coupon period accrue from the penultimate coupon payment date up to and including the maturity date? So, do you not pay for the protection on the maturity date i.e. with the inclusion of the maturity date in the accrual? For the 6M case, thanks for the clarification i.e. 2 coupons, not 1. Just wanted to check though, if I buy protection for 6M on 19 Mar 2020, I will not have to pay the first coupon i.e. on 20 Mar 2020 (because of the "first payment after T+1" rule)? $\endgroup$ – Francis Nov 16 '20 at 9:16
  • $\begingroup$ Apologies, ignore my comment regarding the extra day of accrued premium. I think I see what you mean when I read more closely i.e. a 3M trade on 19 Mar 2020 gives protection from and including 19 Mar 2020 to and including 20 Mar 2020. So, effectively 2 days of protection if traded early on the 19 Mar 2020. With the full payment of 92 days by the buyer and the rebate of 91 days from the seller, the buyer effectively only pays 1 day worth of premium. Thanks again. Hopefully this is my last question on credit conventions for a while! $\endgroup$ – Francis Nov 16 '20 at 11:47
  • $\begingroup$ You are very welcome. Please don't hesitate to ask more questions on market conventions if you have any! (I mentioned the additional day of protection b/c you mentioned "inclusive of <maturity>" in your question. If you don't include this detail right, then it's not material for a multi-year swap, but you can get weird curve shapes when you bootstrap 0m and 3m spreads.) $\endgroup$ – Dimitri Vulis Nov 16 '20 at 13:25

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