A Credit Default Swap (CDS) is a form of insurance which is designed to protect against credit risk, i.e. default by a creditor. Typically the CDS contract will relate to a specific bond issued by a specific issuer. The CDS will trigger a payment to the holder (usually an investor holding the bonds) by the writer (usually an investment bank) if the issuer of the bonds defaults on payment, or suffers a "credit event". Most CDS are classified as derivatives and are governed by ISDA (International Swaps and Derivatives Association); ISDA will provide guidance on what constitutes a credit event. CDS also provide a good way of gauging how markets are pricing the risk of default by the issuer. For example many analysts have recently been paying a lot of attention to CDS pricing for sovereign bonds.
Similar Fund Terms: CDS, Derivatives
If you have any further questions or would like to add to this fund management term, then please submit your thoughts below.
Fund Management Terminology and Concepts Explained: www.fundterms.com