That’s true, but the CDS market has “said” some pretty irrational things of late.
For example, the CA vs. Russia thing. California is as loopy as liberal come, and their finances are a mess, but they must service their debt. It is in their constitution. They have no choice; if they try to default, debtors can take them to court and say “You have enough to pay your education expenses, and you have more than enough to pay us!” and a whole lot of loony projects get canned while the two topmost fiscal priorities are paid for.
In Russia, go ahead and try taking anything into a court. Russia isn’t a market for those who don’t use force of arms to enforce their contracts.
Well, hopefully we can avoid that set of circumstances.
And your point is understood. But the market is voting on a multitude of relevant variables, including, for example the likelihood of a deterioration in the rule of law for any period of time.
The final point being that understanding the terms of these contracts, which I gather are pretty sublime, is a real edge.