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Credit Default Swaps Allow You To Insure Company Bonds

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작성자 Isidra (141.♡.193.5) 작성일24-10-02 19:14 조회5회 댓글0건

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CDS contracts do put a floor underneath the financial risk of owning a large portfolio of bonds. The CDS price reduces the return on the bonds. Fund managers accept this as a cost to do business. Because an unhedged bond default would be so devastating for their fund, it is acceptable to lose this money.

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You could, however, buy a CDS on a corporate bonds that you don't own. This is akin to selling a stock for short. You believe that a particular corporate bond will fail so you purchase the CDS to make a profit when it does.

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