Introduction to Credit Default Swaps

Swap essentially is a contract between two parties (usually called ‘counter parties’) to exchange with each other cash flows spread across a period of time depending upon the terms of the swap contract.

Any swap contract involves counter parties with exactly opposite financial views about the market, stock price, interest rates etc.

Credit default swaps also involve counter parties with opposite views about the credit risks involved in holding the debt of any Corporation or any Sovereign debt security.

Risky corporate & sovereign bonds are the most recent type of securities that have benefited from the related derivative contracts. There is always inherent risk of default is involved in any bond or debt security. The default by the issuer of the bond or other debt is termed as a credit event.

China's Manufacturing Growth Slows down

Stocks in Asia declined due to concerns over the growth of China as the manufacturing growth in China is less than what was anticipated for the month of May. 

 

The Purchasing Managers’ Index (PMI) fell to 53.9 from 55.7 in April. The Purchasing Managers’ Index is an indicator of economic activity. A PMI above 50 is an indicator of economic growth whereas a PMI below 50 is an indicator of reduction in economic activity.