CDS中文稱為：信用違約互換交易 CDS full name call Credit default swap
In order to clarify the concept of CDS, I first give an example: Mr. A and Mr. B are two different individuals, Mr. A believes that Mr. B is a, very poor driving skills of people, sooner or later, Mr. B will a car accident, have died.
Mr. A then find an insurance company, for Mr. B to buy, driving a car accident death insurance, the amount is $ 10,000, the monthly premium by the two parties agreed that if Mr. B, normal everyday life, not because of traffic accidents and death, then Mr. A will be a month to the insurance company to pay insurance costs.
If Mr. B, unfortunately, because driving a car, accidental death, then the insurance company to Mr. A, compensation $ 10,000.
CDS concept is this:
In the credit default swap, CDS buyers will keep the default swap seller to pay a fee (called a credit default swap spreads),
The event of default, default swap buyers will have the right to bonds sold at par default swap sellers, buyers so as to effectively avoid the credit risk.
For example, A lends to B, to C purchase CDS, the A, the purchase of CDS can reduce the risk. B does not occur as long as credit default event, C can be regularly charge and increase revenue. However, if a breach of contract B, C to A compensation agreement will be insured, the face of loss.
Credit default swap (CDS) refers, may make a "credit providers (lenders)" transfer of credit risk derivatives.
For example, Bank A lend three hundred million U.S. dollars given to companies C, Bank A in order to reduce the risk of default, CDS has signed a contract with Bank B, Bank A to Bank B, to pay insurance premiums, the two sides to work out, the amount of insurance, if the future happen breach of contract case, Bank B will need compensation, bank A's entire loss. Risk of default, then transferred from the original bank A to bank B, so called "credit default swap."
Lehman in 2008 after the collapse of the financial turmoil, the CDS Greece by the end of March 2009 of 322bps (3.22%) increased in May 2010 when 838bps (8.38%).
Simply said, in May 2010, 100 million of Greek debt, to pay 83 800 in order to transfer the credit risk of the hands of Greece;
But at the end of March 2009 only need to pay 32200.
In other words, when in May 2010, Greece's credit risk is significantly increased. If the Greek debt problem persists, continue to credit risk, the CDS will be more and more, on the contrary, will be getting lower and lower.
When the reader with the concept of CDS,we can continue the following process.
過去數月，有關歐洲債務的消息，無論是正面的，或者是負面的，都瞬息萬變，令到，相隔了一個大西洋的美國交易員，他們原本早上 9時，才會為股市交易作準備，目前，卻要大幅度提前，在凌晨 2時半，開始工作，因為他們須要，密切監察歐洲金融市場，開市後的市場情況。
Over the past few months, the news on the European debt, whether positive or negative, are constantly changing, so that, a part of a transatlantic American traders, who had 9 am, will prepare for the stock market transactions, the current have a substantial advance in 2:30, to work, because they need to closely monitor the European financial markets after the market opened, the market conditions.
The recent performance of U.S. stocks is indeed led by the direction of European financial markets. European Union leaders, when the summit ended, despite the consensus reached at the conference leaders, committed to the establishment of the new fiscal union, but it does not mean, the debt crisis in Europe, will be ended.
Financial market traders also failed to sleep so many hours a day. First, do not discuss, to rescue countries in financial difficulties the money from where to find?
According to the European Banking Authority (EBA) for the latest information, "bomb" has been buried in the European region's financial institutions.
Intra-European bank, as holders of a large number have been in financial difficulties, the country's sovereign debt, and thus the balance sheets of banks, should have a good quality of operation, continues to drop.
根據最新的 EBA數據顯示，由於歐洲銀行陷入財政困難，銀行為了廣開財源，彼此競爭，不斷濫發陷入財政困難，債務堆積如山的國家，擁有的信貸違約掉期（ CDS）。
According to the latest data show that EBA, because European banks in financial difficulties, banks in order to open up financial resources, compete with each other, constantly spamming in financial difficulties, the mountain of national debt, with credit default swaps (CDS).
Their purpose: to seek to obtain, CDS buyers have to pay insurance benefits.
舉法國國家巴黎銀行為例，銀行發行及買入法國主權 CDS，金額分別為 35億歐元及 20億歐元，換言之，法國國家巴黎銀行，淨額發行法國主權 CDS金額，達 到15億歐元。
For example, the French National Bank of Paris, the French banks to issue and buy sovereign CDS, respectively amount to € 3.5 billion and 2 billion euros, in other words, the French National Bank of Paris, the French sovereign CDS net issuance amount of 15 billion euros.
If the French finally on its sovereign debt default, the French Paribas will have to make huge compensation.
Of which the largest is the core issue: the French Paribas itself holds a lot of French sovereign debt, so financial markets investors have every reason to fear that the bank's business prospects.
而歐洲銀行業，淨額發行 CDS，的主權國名單，包括意大利及西班牙，發行淨額分別達 52億及 15億歐元。
The European banking sector, net issuance CDS, the list of sovereign states, including Italy and Spain, respectively, net issues amounted 5.2 billion and 15 billion euros.
I patiently and then briefly explain what is the CDS.
It is a financial and insurance product.
Bond investors holding the bond for the sake of peace of mind, he could buy CDS insurance, however, on a regular basis, to issue CDS insurance issuer, to pay insurance premiums. If, some sovereign bonds held by default, CDS issuers, monetary compensation will be made for the buyer.
歐洲銀行業的交易對手風險（ counterparty risk）正在升溫，令人憂慮的實情是：根本毋須任何國家出現違約或破產，現時歐洲 CDS保險市場規模之龐大，已經可以，拖累整個世界的經濟。
European banking counterparty risk (counterparty risk) is heating up, worrying truth is: there is no need of any state of default or bankruptcy, the current insurance market in the European CDS enormous scale, they can already, drag the entire world economy.
According to requirements of CDS insurance market transactions, the bank every day for the CDS must be the difference between the insurance and related notes, additional margin amount.
As long as the state to issue bonds, which bond prices continued to fall, the European regional banks, will eventually be added because the amount of margin, again in financial difficulties.
法國興業銀行（法語：Société Générale，簡稱法興，Euronext： GLE）
Therefore, Moody's rating agency, then the three most recent French Bank: Bank of Paris, France, French bank Societe Generale and Credit Agricole, France, Reducing the rating, it is fully justified.
Perhaps some people think: there is too worried about this situation worry.
But in 2008, the financial crisis had not occurred, and not many people would be thought of AIG, because of counterparty risk, and ultimately required by the U.S. government custody.
Currently, the European banks hidden counterparty risk, AIG is a replica of that year, and even more extensive range will be implicated.
My blog published on this site all content is purely personal opinion to share, did not constitute investment advice for any person.
The next issue we will look back at history. You know what 「carry trade」is it?