Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

July 17, 2008

Worth 1000 Words — Or 381 Words After Inflation

by Brad Warbiany

A credit-default swap is best described as insurance against a debtor defaulting on their debt. If you’re holding someone’s paper, and you are concerned of a risk of default, you hedge that risk using a CDS with someone to ensure that you don’t encounter overwhelming losses.

So what does it mean when the chart of CDS contracts on US Treasury bonds, the worlds main “risk-free” debt, looks like this?

Worth a thousand words

Hat Tip: Marginal Revolution

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  • Thane Eichenauer

    I say it means that an educated person would want a chart covering more than 3 months before making financial decisions.

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