The Credit Default Swap (CDS) market has been in the news recently, as Greece goes through the throes of imminent or not-so-imminent default. I thought it would make sense to put down my thoughts on the market: a. What is a CDS? A CDS allows you to buy insurance against default by a specific entity - government or corporate. Consider, for instance, the 5-year CDS against Brazilian default. On February 11, 2010, it would have cost you 137 basis points to buy this swap on the CDS market. In practical terms, if you had $ 100 million in $ denominated 5-year bonds issued by the Brazilian government, you would pay $1.37 million each year for the next 5 years for protection against default If the Brazilian government defaulted during the period, you would receive $ 100 million.
The Credit Default Swap (CDS) Market
The Credit Default Swap (CDS) Market
The Credit Default Swap (CDS) Market
The Credit Default Swap (CDS) market has been in the news recently, as Greece goes through the throes of imminent or not-so-imminent default. I thought it would make sense to put down my thoughts on the market: a. What is a CDS? A CDS allows you to buy insurance against default by a specific entity - government or corporate. Consider, for instance, the 5-year CDS against Brazilian default. On February 11, 2010, it would have cost you 137 basis points to buy this swap on the CDS market. In practical terms, if you had $ 100 million in $ denominated 5-year bonds issued by the Brazilian government, you would pay $1.37 million each year for the next 5 years for protection against default If the Brazilian government defaulted during the period, you would receive $ 100 million.