Israel’s sovereign credit-default swap market

Israel’s sovereign credit-default swap (CDS) market is the over-the-counter market for contracts that reference the credit risk of the State of Israel. A CDS allows a protection buyer to make periodic premium payments to a protection seller in exchange for compensation if a contractually defined credit event occurs. The market’s quoted spreads are used as indicators of the cost of insuring against sovereign credit risk, but they also reflect contract terms, liquidity and wider financial conditions.^[1][2]

Market structure and contracts

A sovereign CDS is a derivative contract between counterparties rather than a bond issued by the government. The buyer of protection pays a recurring premium, commonly quoted in basis points per year on the contract’s notional amount. The seller assumes the defined credit-event risk. If a qualifying event occurs, settlement follows the contract’s terms and may involve delivery of eligible debt or a cash payment determined through an auction process.^[1][3]

Market quotes are commonly organized by tenor, with the five-year contract often used as a reference point for cross-country comparison. Quotes may also vary by currency and by the debt seniority or restructuring terms specified in the contract. A quoted spread is therefore not a universal price for all possible protection on Israel: comparisons need to match relevant contract features.^[1]

The market is generally conducted over the counter, with trades agreed among market participants rather than through a single centralized exchange. Publicly accessible price series and index pages can provide an indication of quoted levels, but do not by themselves show the full depth of the market or the amount that could be traded at a particular price. International Swaps and Derivatives Association (ISDA) SwapsInfo provides data on CDS prices, transaction activity and outstanding notionals based on reported trades, while commercial data vendors publish country-specific quote series.^[2][4]

Reading the spread

A CDS spread is the premium associated with protection, not a direct probability that the sovereign will default. Higher spreads generally indicate that market participants demand more compensation to assume the contract’s credit-event risk. However, translating a spread into an estimated default probability requires assumptions about recovery value and other features of the contract; the result is a model-based estimate, not an observed probability.^[1]

For Israel, analysts may compare sovereign CDS spreads with yields and spreads on Israeli government bonds, including foreign-currency debt. Such comparisons can help distinguish changes in perceived credit risk from changes in bond-market conditions. The measures are not interchangeable: bonds have cash-flow, currency and liquidity characteristics, while CDS contracts have derivative-specific terms and counterparty exposures. Differences between a bond spread and a CDS spread are often discussed as a CDS-bond basis, but the basis can reflect more than a simple difference in default expectations.^[1]

The CDS market is forward-looking in the limited sense that its prices change as participants revise the price at which they are willing to buy or sell protection. It does not provide a definitive forecast. Spreads can move because of views about public finances, economic growth, security conditions or political developments, and also because of changes in global risk appetite, dealer balance-sheet capacity, funding conditions, or trading liquidity. Interpretation therefore benefits from comparison with bond prices, sovereign-rating assessments and macroeconomic information rather than treating a single quote as a stand-alone conclusion.^[5]

Israel-specific context

Israel’s public debt is managed by the Government Debt Management Unit in the Accountant General’s Office of the Ministry of Finance. Its annual debt reports describe the sovereign’s domestic and external debt, issuance activity, secondary-market trading, ratings and debt-management risks. These reports provide context for the government debt referenced by market participants, although they are not a comprehensive source of CDS transaction-level data.^[6]

The government’s 2024 annual report describes a fall in Israel’s risk premium toward the end of that year, measured using CDS and spreads on sovereign bonds, and says the positive trend continued into early 2025. The report links the movement to developments in the security and political environment. This illustrates how Israel-related CDS pricing may respond to changing assessments of country risk, but the report does not supply a full series of market prices or isolate the effect of individual causes.^[5]

The 2025 annual report of the Government Debt Management Unit characterizes that year as involving a complex economic and security environment and discusses government debt management and market conditions. The CDS market forms one part of the wider setting in which investors assess Israel’s sovereign credit risk; the report’s principal focus, however, is public debt and its management rather than the microstructure of CDS dealing.^[6]

Uses and limitations

Market participants may use sovereign CDS to transfer or take on credit exposure, hedge some risks associated with sovereign bonds, or express a view about changes in credit conditions. Researchers and market observers may also use spreads as one indicator of how the market is pricing sovereign risk. A CDS position does not necessarily offset the risks of a particular bond perfectly: reference obligations, currency, maturity, restructuring provisions and settlement mechanics may differ.^[1]

A CDS spread should not be read as a government borrowing rate or as an official credit rating. It is a market quote for a specific contractual exposure at a particular time. Where trading is limited or quotes are indicative, the displayed value may not represent a level at which a large transaction could be executed. Public data can also differ by provider, quote time and contract specification. For these reasons, the existence of a published five-year Israel CDS series does not, on its own, establish how much trading occurred or how liquid the market was on a given day.^[2][4]

CDS protection also introduces counterparty and settlement risks. A protection buyer depends on the seller’s capacity to perform, subject to applicable collateral and contractual arrangements. Following a credit event, the determination and settlement process is governed by the relevant contract definitions and market procedures. Credit-event auction resources describe auctions as a mechanism for establishing cash settlement values for trades subject to auction settlement.^[3]

Data and transparency

Information about the Israel sovereign CDS market is available from more than one type of source. Commercial services publish country and tenor-based spread series; Cbonds, for example, lists an Israel five-year CDS index and describes the referenced exposure as foreign senior debt.^[1] Such series can help track broad movements but generally do not substitute for trade-level data, and access to historical observations or detailed specifications may be restricted or incomplete.

ISDA’s SwapsInfo platform explains that it presents information on CDS prices, trading volumes, trade counts and outstanding notional based on trades reported to the DTCC Swap Data Repository, with coverage periods varying by measure.^[2] These data concern reported derivatives activity and should be interpreted within their stated coverage. Neither a public price index nor an aggregate reporting dataset necessarily reveals every bilateral quote, trade or risk position involving Israel-related contracts.

The main practical distinction is between a market price indicator and a complete description of market activity. A spread series can show that the price of protection changed, but assessing market depth, executed volume, the distribution of counterparties or the precise exposures outstanding requires data beyond a headline quote. Accordingly, Israel’s sovereign CDS market is best understood as one component of the broader market for Israeli sovereign risk, alongside government bonds, credit ratings and public-finance information.^[2][5][6]