Inverted or V-Shaped CDS Term Structures

What drives the term structure of CDS spreads? Given that only the 5yr CDS is liquid, technicals and fast money accounts often drive the 3yr-, 7yr- and 10yr-buckets. But that's not always the only parameter. Consider for instance the maturity distribution of Gannett's debt, for example:



The firm has large amounts of loans to pay back or refinance in 2012. It is then not surprising to see that, although CDS spreads are elevated for all terms on this issuer, the 3-year CDS is most expensive:



If the company can survive that 2012 hurdle, then markets imply a lower probability of default after that.

Note that, on this issuer, it would be too expensive to put on the trade discussed in the previous post: the cost of the option would here be 640bp (the cost of buying 10yr protection) after the long CDS position (3yr or 5yr here) expires.