> I've always been so puzzled by these "synthetic" financial products. Well what you are describing with your swap scenario is the very definition of a synthet

> I've always been so puzzled by these "synthetic" financial products. Well what you are describing with your swap scenario is the very definition of a synthetic product, so your question as posed doesn't really make any sense:) The real answer probably has a few reasons 1) There are more benefits to owing a bond than just the coupon and principle payments, why give those up by handing ownership of the bond to the bank? With a CDS you still own the bond and the insurance in the case of a default, and remember a default doesn't mean the bonds go to zero. What if the bond doesn't default but goes way up in value, you've handed that value over to the bank rather than getting it yourself. What if you want to sell the bond before the expiry date. All of these are answerable on their own but you can see how this actually rapidly complicates things. 2) and this is probably alot more important, What if I don't have the bond itself but still want default insurance on the bond? I might be a large counterpart to the company, htey could be my largest client or supplier.