Sure, the math isn't that complicated but i'll give the caveat that I don't manage money in this space so its a bit outside my area of expertise.

THe annual premium is approx the premium paid to cover the expected loss, so:

spread = (prob_of_default_annual * (1-recovery_rate)

We have a spread of 0.06 and a recovery_rate of 0.4

so the annual probability of default is about 0.10

Now converting that to 5 year we have

prob_of_default5y = 1 - (1-pd_annual)^5

Which gives about 40%.

And if you look at the cds spreads across various bond ratings you'll see they look like

Rating || 5y CDS Spread || 5 yr default prob

BBB 60-120bps 1-3%

BB 150-250bps 5-15%

B 400-700bps 25-34%

CCC 700-1200bps 35-60%

You can buy insurance on a bond defaulting, it’s called a credit default swap. One party sells a credit default swap and another party buys the credit default swap.

The price of a credit default swap is essentially the probability that the borrower defaults on its bonds (misses an interest payment) which would mean the person who sold the credit default swap would owe money to the holder of the credit default swap.

The price of a credit default swap increasing means the market is pricing in a higher probability of Coreweave defaulting on a bond. Oracle credit default swaps have also increased in price lately.

Coreweave has taken on a ton of debt to pay for everything they’re building. Investors can make money by lending Coreweave money and charging interest (aka a bond).

Separately, investors can buy a derivative product that is a bet that Coreweave won’t be able to pay this money back. This is a called a “credit default swap.” If Coreweave starts missing payments or can’t pay back the loan this instrument pays out.

The price of the instrument is linked to the likelihood that Coreweave won’t be able to repay the money. Given growing questions around their financial business model the price of these derivatives has been rocketing up over the last few months. In plain speak this means the market increasingly thinks Coreweave won’t be able to repay these loans.

Thats mirroring broader Wall Street sentiment these last few months that the math isn’t adding up on AI and all the spend committed isn’t mapping out against money likely to be available to pay for all that. Investors are increasingly making plays for the AI bubble popping and the price of these credit default swaps shooting up is one metric indicative of that downturn positioning.

The data on this is available in various financial data platforms and has been written about by financial news outlets.