Tuesday, August 26, 2008

CDS - Credit Default Swaps

The Economist has an interesting piece on the role of CDS - credit default swaps. Not surprisingly the cost of insuring debt has gone up...
The five-year CDS spread had more than doubled to 740 basis points (bps), meaning it cost $740,000 to insure $10m of its debt.

Also of interest is the increasing use of the CDS market to speculate on firms. In essence this might provide a means of betting on a firm's declining credit.

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