CD swaps reveal the preferences of debt buyers for risky debt and clearly show trouble in advance of downgrades.
This article details the surge in purchases, and the change in prices in sovereign debt.
As tax revenues plummet, more sovereign nations will find it harder to sell debt, and some nations will default, CDSs will cushion the blow.
* * * * * J B K * * * * *
San Francisco
Traders are buying protection against defaults on sovereign debt at more than five times the rate of company bonds as governments fund ballooning deficits.
The net amount of credit-default swaps outstanding on 54 governments from Japan to Italy jumped 14.2 percent since Oct. 9, compared with 2.6 percent for all other contracts, according to Depository Trust & Clearing Corp. data. European countries led the jump, with the amount of protection on Portugal climbing 23 percent, Spain 16 percent and Greece 5 percent.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ahKdQ_0KjwaQ&pos=4
