Monday, January 12, 2009

Shouldn't the premium on a US Gov CDS be zero?

Felix Salmon over at Portfolio.com notes that the CDS (credit default swap) premium on US Government bonds is around 50bp. This means that you can buy "insurance" on your US Gov Bonds for about half a percent a year. The question he poses is why is this not zero?

Its an interesting article and well worth a read.