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A credit default swap index is a credit derivative used to hedge credit risk or to take a position on a basket of credit entities. Unlike a credit default swap, which is an over the counter credit derivative, a credit default swap index is a completely standardized credit security and may therefore be more liquid and trade at a smaller bid–offer spread.
Credit default swaps in their current form have existed since the early 1990s and increased in use in the early 2000s. By the end of 2007, the outstanding CDS amount was $62.2 trillion, [3] falling to $26.3 trillion by mid-year 2010 [4] and reportedly $25.5 [5] trillion in early 2012.
Credit default swap indices allow an investor to transfer credit risk in a more efficient manner than using groups of single credit default swaps. They are standardised contracts and reference a fixed number of obligors with shared characteristics. Investors can be long or short the index which is equivalent to being protection buyers or sellers.
Credit default swaps are about as opaque an investment as you can get, and the big Wall Street banks aren't much better. In that spirit, here's a delightfully straightforward investment The Motley ...
Spreads on U.S. one-year credit default swaps (CDS) - market-based gauges of the risk of a default - widened to 49 basis points on Thursday, according to S&P Global Market Intelligence data, the ...
Credit default swaps are a portfolio management tool that gained notoriety during the peak of the 2008 financial crisis. These derivative investments are bit more complex than stocks, mutual funds ...
The credit default swap or CDS has become the cornerstone product of the credit derivatives market. This product represents over thirty percent of the credit derivatives market. [5] The product has many variations, including where there is a basket or portfolio of reference entities, although fundamentally, the principles remain the same.
Markit Group Limited marketed the ABX index and by 2007 had acquired (CDS IndexCo). On 17 The ABX index was a credit default swap of asset-backed mortgages of 30 of the most liquid mortgage-backed bonds. Hedge funds began shorting that ABX index in early 2006 at par. The Deutsche Bank, alone, reportedly made $250 million.