The credit default swaps (CDS) market has been a hive of activity with record volumes set in Q1 and a new product launch from S&P Dow Jones Indices. This is being driven by structural macro and structural risks ranging from the ongoing war in Iran to the disruption caused by AI and the state of private credit.
The latter is the reason behind S&P Dow Jones’ new product- CDX Financials index. It is linked to private credit funds, which have experienced their most challenging time since the sector’s rapid expansion following the 2008 financial crisis.
The concerns are similar regarding rising impairments, questions over valuations, the use of leverage and liquidity mismatches. What is new are fears tied to software exposure in an AI-driven world, and refinancing risks.
The new index, which will be traded by major banks including Bank of America, Barclays, Deutsche Bank and Goldman Sachs, will expand credit derivatives coverage to include a broader set of financial institution such as business development companies (BDCs).
These include Apollo Debt Solutions, Ares Capital and Blackstone Private Credit Fund, which together will comprise 12% of the equally weighted index.
CDS’ are akin to insurance-like instruments that pay out if a borrower fails to meet debt obligations. As a result, they are seen as a traditional hedge for corporate portfolios although investors also are increasingly using them to speculate on the direction of the wider market. This is especially the case when conditions make it hard to immediately buy or sell a big part of their portfolio.
Against this turbulent backdrop, it is no surprise that CDS had a bumper Q1. Trading volume overall in the world’s largest CDS indexes surged 69% to $4.5 trn. (https://seekingalpha.com/news/4572595-traders-nervous-on-corporate-debt-as-credit-default-swap-volume-hits-record). This surpasses the prior peak set in Q2 2025 during tariff-related market turmoil by 36% and is up roughly 350% from the roughly $1 trni n Q4 2019, before the pandemic.
In Europe, analysts note investor positioning has turned bearish on credit indexes for the first time since 2018, signalling a shift toward more defensive strategies (https://www.bloomberg.com/news/articles/2026-04-01/credit-derivative-trading-shatters-records-on-iran-war-ai-fears).
Looking ahead, the momentum is expected to continue with investors focused on downside protection and increasingly using CDS to hedge the heightened uncertainty around growth, geopolitics, and corporate earnings durability.
Industry estimates are that the global CDS market will rise to approximately $9.5 trn in 2026, although the outlook for the second half will be defined by a pivot toward lower interest rates and a focus on sector-specific default risks.
