 Quote:
Originally Posted by boont
I still haven't quite figured out how one can have a nominal value of bonds in the country and have a credit default swap value for those bonds that is tens times the value of the bonds themselves. But that will come in time.
b.
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That's because it doesn't. For every buyer of Credit Default Protection there is a seller. Assuming these counterparties are all solvent at the end of the day, shorts and longs net out to zero.
Comments suggesting that the CDS market is X times greater then outstanding bonds is talking only of notional size and doesn't recognize that each contract is made up of a perfectly offsetting short and long position.
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