CDS has spillover effect on bond liquidity but could cause fire sales, finds BoE researcher

By Dan Alderson

Single name CDS positioning is positive for the bonds of borrowers referenced by the contracts through a ‘liquidity spillover effect’, according to a new paper by a Bank of England research economist. But mark-to-market losses on CDS brought about by higher margining costs could lead to fire sales in the bond market, the paper adds.

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TAGS: CDS Europe High yield bonds Investment grade credit North America Abacus

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