3 ms·
Buying credit default swaps on US treasuries is like buying suntan lotion in anticipation of a nuclear attack. No counterparty can credibly insure such an even
by fiatmoney 10y ago
Buying credit default swaps on US treasuries is like buying suntan lotion in anticipation of a nuclear attack. No counterparty can credibly insure such an event & the money you would make in a cash-up-front variant would be incredibly likely to become worthless.
- eru 10y agoOh, I don't suggest holding to maturity. I suggest selling when the market's perception of risk has crept up to the level one feels justified by fundamentals. See also http://www.bloomberg.com/view/articles/2013-09-26/why-would-anyone-buy-credit-default-swaps-on-the-u-s- http://www.bloomberg.com/view/articles/2013-09-26/why-would-...
- hueving 10y agoA CDS can pay the difference if a government decides to pay a fraction of the full value. This has happened in other countries without total financial collapse and could feasibly happen in the US if it has a president that actively wants to negotiate debt down. You could also purchase PUT options on a bond ETF like TLT where the counter-party will be the OCC, which will have little exposure to the turmoil in the bond market like a bank that would underwrite a CDS.