QUICK DEFINITION
Credit Default Swap is a derivative contract that transfers the credit risk of a borrower or reference entity between counterparties.
WHY IT MATTERS
Why Credit Default Swap matters in bond markets
CDS spreads provide a liquid market-based signal of perceived default risk and can move before cash-bond spreads.
MARKET CONTEXT
How to think about it
Bond investors use credit default swap as part of a wider framework that links prices, yields, cash flows, liquidity and risk. The concept should therefore be read together with its related terms rather than as an isolated definition.
Is Credit Default Swap important for fixed-income investors?
← Back to the Bond Market Glossary Yes. CDS spreads provide a liquid market-based signal of perceived default risk and can move before cash-bond spreads.