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How a Zero-Month CDS Tenor Maps to the Next Standard Maturity

Article Quant Q&A · Author: RomanU
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Summary

The note explains that a zero-month tenor in single-name credit default swaps refers to the next standard maturity date, rather than a contract with no remaining life. In the example, standard maturities fall on June 20 and December 20. On June 1, the zero-month contract therefore matures on June 20, while longer tenors map to later standard dates.

Because the next standard date changes as the calendar advances, a zero-month maturity is available only during part of each six-month cycle. After that date passes, the zero-month contract disappears until the next standard maturity approaches. The examples show how other stated tenors map onto intervening or later dates when such contracts are liquid. This clarifies the calendar convention, but does not discuss CDS valuation, liquidity, or contract terms beyond maturity scheduling.

Key ideas

  • A zero-month CDS tenor means maturity on the next standard CDS date.
  • The examples use June 20 and December 20 as standard maturity dates.
  • Once the next standard maturity passes, a zero-month tenor is no longer available.
  • The zero-month contract reappears as the next standard date approaches in the following cycle.
  • Intermediate tenors depend on their corresponding calendar maturity dates and market liquidity.

Tags

Fixed incomeDerivatives pricing
Full text
# What is zero month tenor of CDS?


# What is zero month tenor of CDS?












there is 0 month tenor for CDS instruments, it is not clear what does it refer to Can anyone explain what zero month tenor for single-name CDS stands for?

## Answer by Dimitri Vulis (score 1)

https://quant.stackexchange.com/a/58252

Following the "big bang", the standard CDS maturities are June 20 and December 20. (See: https://www.isda.org/a/vGiDE/amend-single-name-on-the-run-frequency-faq-revised-as-of-12-10.pdf and https://www.isda.org/a/jGiDE/amend-single-name-on-the-run-frequency-faq-revised-as-of-10-5.pdf question 11 for more examples. Single-name contracts used to roll 4 times a year, but now almost all roll only twice a year, like the indices.) (They are sometimes called "IMM dates", which confuses people who think "IMM dates" are 3rd Wednesdays).

For example, if today is June 1, 2020, then a 5-year CDS matures on June 20, 2025.

A 1-year CDS matures on June 20, 2021.

A 6-month CDS matures on December 20, 2020.

Do you see the pattern?

A 0-month CDS matures on June 20, 2020, the next standard maturity date.

If a 3-month and 9-month CDSs are liquid, then they would mature on September 20, 2020 and March 20, 2021 respectively.

Now consider the state of the world 1 month later - on July 1, 2020. The 0-month CDS has matured and does not trade anymore. The other tenors are unchanged.

Now consider the state of the world 6 month later - on December 1, 2020.

All the tenors have shifted by 6 months. A 5-year CDS matures on December 20, 2025, while a 0-month CDS exists again and matures on December 20, 2020.

Observe the 0-month tenor exists for 3 months, then does not exists for 3 months, then exists again (with its date 6 months later) for 3 months...

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.