Worth 1000 Words — Or 381 Words After Inflationby 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?
Hat Tip: Marginal Revolution