Bulletin – December 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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