Bulletin – December Quarter 2011 The Australian Credit Default Swap Market Abstract

The Australian credit default swap (CDS) market has been increasingly used by financial institutions to trade and manage credit risk. As a result, there has been greater use of the market as a source of credit risk pricing information. Similarities between CDS and bonds allow pricing in the two markets to be compared. However, the CDS market has a greater tendency at times to be affected by poor liquidity, which complicates the interpretation of CDS pricing, particularly when there are large divergences from bond market pricing.

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