Credit Default Insurance


DEFINITION of 'Credit Default Insurance'

The use of a financial agreement - usually a credit derivative such as a credit default swap, total return swap, or credit linked note - to mitigate the risk of loss from default by a borrower or bond issuer.

BREAKING DOWN 'Credit Default Insurance'

Credit default insurance allows for the transfer of credit risk without the transfer of an underlying asset. The most widely used type of credit default insurance is a credit default swap. Credit default swaps transfer credit risk only; they do not transfer interest rate risk. Total return swaps transfer both credit and interest rate risk.

  1. Credit Default Swap - CDS

    A particular type of swap designed to transfer the credit exposure ...
  2. Recession

    A significant decline in activity across the economy, lasting ...
  3. Total Return Swap

    A swap agreement in which one party makes payments based on a ...
  4. Credit Derivative

    Privately held negotiable bilateral contracts that allow users ...
  5. Risk

    The chance that an investment's actual return will be different ...
  6. Credit Linked Note - CLN

    A security with an embedded credit default swap allowing the ...
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