Goldman retakes top dealer spot in single-name CDS trades - Risk.net (2024)

FAQs

Goldman retakes top dealer spot in single-name CDS trades - Risk.net? ›

Goldman Sachs regained the top spot for dealers of US mutual funds trading single-name credit default swaps (CDSs), as Morgan Stanley, which had briefly taken the lead in the fourth quarter of last year, saw some of its key clients reduce their books during Q1 2022.

In a “single-name” CDS the risk being transferred is the risk of default by a reference entity. A basket or CDS index will refer to multiple entity names and associated Reference Obligations in some specified way.

Single-name CDS contracts can be cleared voluntarily at clearing houses, such as the French CCP LCH, Clearnet SA, or the U.S. CCP ICE Clear Credit LLC, but 50% of client gross exposure in the single-name market remains uncleared by Q2 2023.

Single-Name Credit Default Swaps

The buyer of protection is insuring against the loss of principal in case of default by the bond issuer. Therefore, credit default swaps are structured so if the reference entity experiences a credit event, the buyer of protection receives payment from the seller of protection.

In its most basic terms, a CDS is similar to an insurance contract, providing the buyer with protection against specific risks. Most often, investors buy credit default swaps for protection against a default, but these flexible instruments can be used in many ways to customize exposure to the credit market.

A swap that references a single security or loan, such as a single-name total return swap (TRS) or a single-name credit default swap (CDS), or a CDS that references a narrow-based index, in most cases composed of less than nine component securities (among other criteria related to weighting of the securities in the ...

Because CDs offer a fixed return, they're the better choice if you'll need the money in the near future. For goals you have within the next five years, go with CDs over stocks. To give you a few examples, CDs can work well for money you plan to use for: A down payment on a home.

The SEC regulates CDS on single names, loans and narrow-based security indexes.

There is no limit to how many certificates of deposit (CDs) you can have. In fact, holding multiple CDs can provide a steady stream of ongoing returns. CDs offer a low-risk way to invest. After opening and funding the account, your money will earn interest for the duration of the CD's maturity period.

In sum, yes, you can lose money on a CD. But as long as you don't withdraw too early, you'll be left with at least your principal. Keep your money in for the entire term, and you won't lose anything at all -- you'll have your principal, plus money earned on today's high APYs.

Are credit default swaps bad? ›

Counterparty Risk: One of the primary downsides of CDS is the exposure to counterparty risk. If the seller of the CDS defaults or fails to fulfill its obligations, the buyer may incur significant losses.

Yes, it is still legal for investors who do not own the corresponding bonds/assets to buy credit default swaps (CDS). CDS are a type of credit derivative that allow the transfer of credit risk from one party to another, and they are the most common type of credit derivative.

A CDS buyer might also sell his protection if he thinks that the seller's creditworthiness might improve. The seller is viewed as being long to the CDS and the credit while the investor who bought the protection is perceived as being short on the CDS and the credit.

In other words, the price of a credit default swap is referred to as its spread. The spread is expressed by the basis points. For instance, a company CDS has a spread of 300 basis point indicates 3% which means that to insure $100 of this company's debt, an investor has to pay $3 per year.

Credit default swaps played a large role in the financial crisis of 2008 for many of the same reasons described above. Large banks which traded in CDS's were forced to declare bankruptcy when a large number of the underlying credit instruments defaulted at once, sending shockwaves throughout the United States economy.

Credit default swaps are derivatives that offer insurance against the risk of a bond issuer - such as a company, a bank or a sovereign government - not paying their creditors. Bond investors hope to receive interest on their bonds and their money back when the bond matures.

What is an index-linked certificate of deposit (CD)? Index-linked CDs are similar to traditional Certificate of Deposit, but they allow the investor to participate in the appreciation, if any, of a particular stock index (like S&P 500), during the term of the CD.

While CD accounts might offer a way to earn interest on your deposits with some added stability, did you know there are numerous types of CDs to choose from? Some include traditional CD accounts, jumbo CDs, and step-up/bump-up CDs.

In the contingent leg (default leg), the CDS index coincides with the protection that would be provided by 125 individual CDS, each with a notional of 1/125. If one of the 125 names defaults, the compensation paid by the seller of the protection is therefore: (1 – R)/125.