Effects of Credit Quality Improvement on CDS Value

In the context of credit derivatives, a credit default swap (CDS) is a financial contract that allows an investor to "swap" or transfer the credit risk of a bond or loan to another party. The buyer of the CDS makes periodic premium payments to the seller, who agrees to compensate the buyer if a specified credit event occurs, such as a default or bankruptcy of the underlying reference entity.

Consider a situation where an investor has a position in corporate bonds of Company XYZ and is concerned about the potential default risk associated with those bonds. The investor decides to purchase a CDS contract to hedge this risk. However, after a few months, the credit quality of Company XYZ improves significantly, resulting in a lower probability of default. The investor is revisiting their CDS investment.

Which of the following statements best describes the implications of this situation for the investor's CDS contract?