# What's the interpretation of the probability of default implied from CDS spreads?

What's the time horizon of the probability of default implied from a CDS spread? Given CDS = PD*(1-R), if I use a 5yr CDS spread in the formula, is the implied PD the probability that that name defaults within the next 5 years or 1 year given it represents the annual premium?

• The statement $CDS\approx PD(1-R)$ is only a very rough estimate. An $N$-year CDS conveys market-implied / risk-neutral default probabilities for a default at any date up until the maturity date of the CDS. You can use a series of increasing maturities to back out risk-neutral conditional default probabilities, i.e. implied probabilities of default during a year $N$. Nov 25 '20 at 15:12

Once you have the hazard rates, it's easy to read off both the probability that there will be a default within $$n$$ years and the marginal probability that, provides there has not been a default until $$n$$, there will be one between $$n$$ and $$m$$.