What Is the Relationship between Bond Yields and CDS Spreads for the Same Entity?

Generally, there is a positive correlation between bond yields and CDS spreads for the same entity. A bond's yield spread over a risk-free rate represents the compensation an investor demands for taking on the credit risk of that bond.

Similarly, a CDS spread is the price of insuring against that same credit risk. Therefore, when the market perceives an increase in an entity's default risk, both its bond yields and its CDS spreads will typically rise together.