The implied odds are two percent but contract trading is very thin. And some of the protection is mandatory. If regulators raise risk flags, some banks feel compelled to buy insurance.
So most likely the true odds of default are much lower.
There is also a three day grace period. We could have a default, but if it is rectified within three days, those betting on a default will be technically correct yet receive no payout.
I believe the odds of a payout on these contracts is essentially zero. But yeah, if there is a default for a couple of days, there will be “chaos” as several people on Twitter have commented.
Author(s): Mike Shedlock
Publication Date: 21 Apr 2023
Publication Site: Mish Talk