Nth-to-default

Japanese: n 番目のデフォルト
Last reviewed: October 4, 2026

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An nth-to-default swap is a CDS on a basket of reference entities in which the seller compensates the loss on the nth entity to default. The trade ends at the nth default, and the case n = 1 is first-to-default.

It is a bespoke product in which the contract ends and compensation is paid at the first (or nth) default, and it is traded as a swap or in note form¹.

Consider a hypothetical example in which a five-name basket has n = 2. The first default is not compensated. When the second name defaults, the seller compensates the loss on that second name, and the trade ends.

Notes

IHS Markit, "CDS Indices Primer" (2021), page 13. ↩

First-to-default
Default correlation

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First-to-Default Baskets

Notes

Related terms

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