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Visual of the 5yr CDS for BoA, MS, Dexia, Soc Gen, Banco Popular and Unicredit

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Credit default swaps are contracts designed to insure creditors against a bank (or indeed any company) going bust.


A CDS is a contract issued by big City firms or fund that guarantees the holder will be covered if a particular company defaults on its debts. It is basically a type of insurance used by large investing institutions.


The CDS is priced differently for each company and as a percentage of the value of the debt to be insured. A five year contract is regarded as the benchmark. CDSs are traded like many other financial instruments and so the price is constantly moving.


So for example the price of a CDS on bonds issued by Barclays is currently priced at 134 basis points - that is 1.34 per cent.


In other words if you hold £1m worth of Barclays bonds you can insure yourself against them defaulting on this debt in the next five years by buying a CDS for £13,400 a year. This will eat into your profits from the interest Barclays pays, but it gives certainty and peace of mind.



Here the latest CDS levels for our favourite banks:


bank sector cds

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