An investor owns some intermediate-term bonds issued by a company and has become concerned about the risk
Question:
An investor owns some intermediate-term bonds issued by a company and has become concerned about the risk of a near-term default, although he is not very concerned about a default in the long term. The company’s two-year CDS currently trades at 350 bps, and the four-year CDS is at 600 bps.
Describe a potential curve trade that the investor could use to hedge the default risk.
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The investor anticipates a flattening credit curve for the r...View the full answer
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Jonas Araujo
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