Credit Spread 01
Credit Spread 01, CS01, or CR01, is similar to DV01, but, instead of telling you how sensitive a bond’s price is to changes in the risk-free rate, CS01 tells you how sensitive a bond’s price is to changes in credit spreads.
We can measure the CS01 of any instrument who’s price is a function of credit spreads, including credit default swaps.
Some market participants prefer to flip the sign, but, similar to DV01, the most common convention is that CS01 tells you how much the price of your security will change due to a 1 basis point decrease in the security’s credit spread. When using this convention, a long corporate bond position will have a positive CS01.
Depending on the instrument, the CS01 and DV01 can be similar or very different:
Credit Default Swap and Floating Rate Bonds typically have CS01, but very little DV01;
Risk-Free Government Bonds should have no CS01, but do have DV01;
for Fixed-Rate Corporate Bonds the CS01 and DV01 are usually equal.
As with DV01 and duration, the change in value calculated in this fashion is only a linear approximation, but, because a basis point is so small, it is usually a very good approximation.