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It’s usually not a good sign when obscure financial instruments are making headlines. And that’s the case now as the political standoff over the U.S. government’s debt ceiling puts credit-default swaps back in the spotlight.
How CDS work
Credit-default swaps, or CDS, are instruments that effectively allow a lender to insure against default by a borrower. An investor who owns a corporate bond, bank credits or government debt, can buy CDS to protect against default. Speculators can also use CDS to place bets, though…
