Tight spreads drive CMDS usage


Credit derivatives desks are increasingly using constant maturity default swaps (CMDSs) to accommodate a more bearish stance on credit spreads. CMDSs allow sellers of credit default protection to insulate themselves from the inherent credit risk of a tightly compressed spread environment.

Tight spreads present protection sellers with a dilemma: while they may be confident that the credits they protect will not default, it is likely that technical pressures will cause spreads on even the strongest

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