How to use credit default swaps when buying bonds

While CDS is still an institutional-only market, preventing retail investors and other corporations from being able to directly partake in it so far, non-active participants can still  keep up-to-date and learn from the wealth of important information that can be gleaned from CDS using new tools being made available.

With the greater availability of credit default swap prices online, here is an example guide from CreditLime for how you can get up to speed and use CDS pricing information to enhance your fixed income investment decisions. It includes how to calculate and use i-spreads, z-spreads and negative or positive basis’.

You can complement CreditLime’s using CDS example with this small summary by BMO Capital Markets and this report by the FT which highlighted several other popular (but non-CDS) fixed income trading examples utilized by hedge funds.

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