CS01
Definition
Credit Spread 01. The change in the present value of a position or portfolio for a one basis point (0.01%) parallel widening in credit spreads. The credit spread equivalent of PVBP/DV01.
What This Actually Means
If a bond portfolio has a CS01 of £200,000, a one basis point widening in credit spreads reduces its market value by £200,000. A 100bp spread widening — typical in a credit stress event — would reduce it by approximately £20 million. CS01 is the primary sensitivity measure for CSRBB, used to size credit spread hedges and set risk appetite limits on bond portfolios, covered bond holdings, and other credit-risky instruments in the banking book.
Where It Matters
CS01 and PVBP are related but distinct — a position can have both. A corporate bond held in the banking book has interest rate sensitivity (captured by PVBP) and credit spread sensitivity (captured by CS01). The two risks move independently: rates can fall while spreads widen, or vice versa. Managing them as a single duration measure conflates two separate risk drivers and can mask the true exposure.
The relationship between CS01 and PVBP depends on the instrument type. For fixed rate positions, CS01 and PVBP sensitivities will generally look identical — both measure the sensitivity of the present value to a 1bp move, and for a fixed coupon bond a spread widening and a rate rise have the same mechanical effect on the discount rate applied to fixed cashflows. For floating rate notes, however, the two measures diverge. PVBP captures the sensitivity of the small residual fixed element (accrued interest between resets), whereas CS01 captures the full sensitivity of the spread component embedded in the coupon — because a CS01 shock widens the spread without changing the underlying reference rate, leaving the floating rate cashflows largely unaffected but reducing the present value of the spread margin. This distinction matters when managing a mixed portfolio of fixed and floating credit instruments.
For CSRBB purposes, CS01 is particularly relevant for HQLA portfolios — government bonds, covered bonds, and high-quality corporate bonds held for liquidity purposes. These portfolios can show significant CS01 even when the underlying credit quality is high, because spread movements affect mark-to-market values regardless of default probability. The 2022-23 period illustrated this sharply: covered bond spreads widened materially, generating large CS01-driven losses in portfolios that were considered low-risk from a credit default perspective.
CS01 is also accounting-treatment-dependent. Positions held at amortised cost (HTC) do not show CS01 losses in P&L — spread widening is invisible in reported earnings until the instrument is sold or impaired. Positions held at fair value through OCI (HTC&S) show spread movements in reserves. Only positions at FVTPL show CS01 impacts directly in P&L. This means a bank's reported CS01 sensitivity depends heavily on how its portfolio is classified, and economic exposure can be significantly larger than reported exposure.