If I buy £1 million in bonds with a coupon of 3% and a redemption date of 2027 (10 years). (I do this to make money) but I want to offset risk the bond issuer defaults.
So I buy a CDS and have to pay the CDS seller an annual fee or a one off payment in order for them to cover the entire £1 million in the case the bond issuer defaults.
I cannot find any examples of how much this fee is and to me is does not make sense:
For a bank to cover £1 million they are going to charge a hell of a lot of money? like way more than 3% a year I am making from the bonds.
How do companies who buy bonds make money on the bonds if they are paying (what I am guessing) is a lot of money to have them insured?
TLDR: I buy £1 million in bonds, how much is a CDS?
Submitted October 20, 2017 at 05:05AM by timeforknowledge http://ift.tt/2zDlzxA
