Why use a credit default swap instead of bonds to speculate on default risk? - smaller cash outlay - greater selection of maturities - limited interest rate exposure - occasionally more liquid than underlying bonds - can bet on foreign credit while mitigating forex risk
Not convinced about greater selection of maturities. Outside of 5Y most names get pretty illiquid. With you on cash efficiency, limiting rates exposure, liquidity and FX hedging.
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Ah I see, I found these advantages from a Pimco blog, interesting it didnt mention that liquidity drawback. Thanks for letting me know!
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It’s probably true for indices but less so for single names
End of conversation
New conversation -
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Totally agree, single name CDS can get very illiquid, but it’s generally fine on the index side.
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