Consider the investor from the prior example who sought to underweight a French media and telecommunications issuer. Assume instead that the investor seeks to maintain a constant media and telecommunications credit allocation by overweighting a BBB rated German media and telecommunications competitor. CDS contract details are as follows:

Describe an appropriate long–short CDS strategy to meet this goal, and calculate the investor’s return if the French issuer’s spreads widen by 10 bps and those of the German issuer narrow by 25 bps based on €10 million notional contracts.

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Issuer French Media & Telecoms Issuer German Media & Telecoms Issuer Tenor 5 years 5 years CDS Spread 110 bps 130 bps EffSpreadDurCDs 4.697 4.669