Back to Home
CDS
(Credit Default Swap)
A CDS (Credit Default Swap) is a derivative contract where the buyer pays premiums for protection against a borrower's default. The seller compensates if the referenced entity (corporate or sovereign) defaults on debt.
The $8.7 trillion CDS market lets investors hedge credit risk or speculate. CDS spreads indicate default probability - Tesla's 5-year CDS was 60bps in 2023 (0.6% annual cost for $10M protection). Naked CDS (buying without bond ownership) exacerbated the 2008 crisis. The SEC now requires central clearing for most CDS. Notable cases: Greece's 2012 restructuring triggered $3.2B in CDS payouts. CDS differ from CDs (Certificates of Deposit) despite similar abbreviations.
The $8.7 trillion CDS market lets investors hedge credit risk or speculate. CDS spreads indicate default probability - Tesla's 5-year CDS was 60bps in 2023 (0.6% annual cost for $10M protection). Naked CDS (buying without bond ownership) exacerbated the 2008 crisis. The SEC now requires central clearing for most CDS. Notable cases: Greece's 2012 restructuring triggered $3.2B in CDS payouts. CDS differ from CDs (Certificates of Deposit) despite similar abbreviations.