Saturday, March 06, 2010

Defenders and Demonizers of Credit Default Swaps

The recent difficulties faced by Greece (and some other eurozone states) in rolling over their national debt has let some to blame hedge fund involvement in the market for credit default swaps. These contracts can be used to insure bondholders against the risk of default, but when purchased naked (without holding the underlying bonds), they can serve as highly leveraged speculative bets on a rise in the cost of borrowing faced by the sovereign states.
A cogent case for prohibiting the use of credit default swaps to make directional bets has been made recently by Wolfgang Münchau in the Financial Times:
I generally do not like to propose bans. But I cannot understand why we are still allowing the trade in credit default swaps without ownership of the underlying securities. Especially in the eurozone, currently subject to a series of speculative attacks, a generalised ban on so-called naked CDSs should be a no-brainer...
A naked CDS purchase means that you take out insurance on bonds without actually owning them. It is a purely speculative gamble. There is not one social or economic benefit. Even hardened speculators agree on this point...
Economically, CDSs are insurance for the simple reason that they insure the buyer against the default of an underlying security. A universally accepted aspect of insurance regulation is that you can only insure what you actually own. Insurance is not meant as a gamble, but an instrument to allow the buyer to reduce incalculable risks. Not even the most libertarian extremist would accept that you could take out insurance on your neighbour’s house or the life of your boss...
I do not want to exaggerate the case for a ban. This speculation is neither the underlying cause of the global financial crisis, nor of the eurozone’s underlying economic tensions. But naked CDSs have played an important and direct role in destabilising the financial system. They still do. And banks, whose shareholders and employees have benefited from public rescue programmes, are now using CDSs to speculate against governments.
Felix Salmon objects to this reasoning, arguing that trade in naked credit default swaps adds liquidity to the market, which in turn makes borrowing easier in times of stress:
One of the big problems with debt markets is that, especially during times of stress, they become very illiquid. Many bankers have spent many hours trying to explain to emerging-market finance ministers that just because their bonds are trading at a certain level in the secondary market, that doesn’t mean they can issue new bonds at that level, or even at all.
But it turns out that a liquid CDS market is a great way of enabling countries to access the primary markets even when the secondary markets are full of uncertainty and turmoil. Which is yet another reason to laud the notorious buyers of naked CDS protection, rather than demonizing them.
Sam Jones also rises in defense of naked CDS contracts, though for somewhat different reasons:
Here’s the rub: there is a palpable social and economic benefit to naked CDS positions. And what’s more, that benefit has perhaps never been more strongly borne out than as in the recent case of Greece.
First, some context via a trip back in time: back to 2004, when the Euro was a more lustrous specie than it is today, and when credit default swaps were breaking into the mainstream... some hedge funds in those more moderate times spotted an opportunity for a trade... buy default protection against the eurozone’s weakest member states, the bonds of which had no place trading so close to German bonds. Buy Italy, buy Spain, buy Greece. And do so, naturellement, au naturale...
What they saw happening was an inevitable re-risking of the eurozone. Italy could not possibly be priced so close to Germany indefinitely, and at some point, during the lifetime of their ten year CDS contract, spreads on Italian bonds would widen... The result would be –- if done well — a perfect sovereign basis trade. And because the CDS contracts required so little initial outlay, it could be done on a huge scale, to significant profit...
In 2008 and 2009... the logic of the trade returned with more heft... Last year, big hedge funds were significant buyers of CDS protection on risky EU states: in particular, they bought CDS against Greece in anticipation of a budget blowup that would send the yields on Greek bonds soaring at some point in the next few months...
What, though, to return to the point of this post, of the broader economic and social benefit beyond well-heeled Mayfair and leafy Connecticut? 
Firstly, any naked CDS buying... occurred, by hedge funds at least, well before the current crisis. Hedge funds have not been the most significant buyers of CDS in recent weeks... Ergo, there is no speculative, opportunistic “attack” underway to try and push Greece further into catastrophe...
Secondly... hedge funds, completing their clever trade, have been buyers of Greek government debt, or else insurers of other holders as CDS writers.
In a market where one of Greece’s principal market makers -– Deutsche Bank –- says it will not buy Greek bonds, and where European politicians are having to force their own national banks to do so in order to try and avert the threat of a Greek bond auction failing, the boon from hedge funds looking to hoover-up Greek debt is undeniable.
And the only reason they are in the market to buy is because of naked CDS positions they laid on many months -– and in some cases years -– ago.
So the argument here is that while hedge funds may have raised the cost of borrowing for Greece in 2008-09, their current actions are making borrowing easier and less costly. 
Leaving aside the question of whether naked CDS trading has been good or bad for Greece, it is worth asking whether there exist mechanisms through which such contracts can ever have destabilizing effects. I believe that they can, for reasons that Salmon and Jones would do well to consider. 
Any entity (private or public) that faces a maturity mismatch between its expected revenues and debt obligations anticipates having to to roll over its debt periodically. Such an entity could be solvent (in the sense that the present value of its revenue stream exceeds that of its liabilities) and yet face a run on its liquid assets if investors are sufficiently pessimistic about its ability to refinance its debt. More importantly, it may face a present value reversal if the rate of interest that it must pay to borrow rises too much. In this case expectations of default can become self-fulfilling. 
This is the central insight in Diamond and Dybvig's classic paper on bank runs, and is a key rationale for deposit insurance. William Dudley highlighted the importance of such effects in a speech last November:
If a firm engages in maturity transformation so that its assets mature more slowly than its liabilities, it does not have the option of simply allowing its assets to mature when funding dries up. If the liabilities cannot be rolled over, liquidity buffers will soon be weakened. Maturity transformation means that if funding is not forthcoming, the firm will have to sell assets. Although this is easy if the assets are high-quality and liquid, it is hard if the assets are lower quality. In that case, the forced asset sales are likely to lead to losses, which deplete capital and raise concerns about insolvency.
Dudley is speaking here of financial firms, but his arguments hold also for governments that do not have the capacity to issue fiat money. This is the case for state and local governments in the US, as well as individual countries in the eurozone. The main "assets" held by such entities are claims on future tax revenues, which are obviously not marketable. In this case, expectations of default can become self-fulfilling even when solvency would not be a concern if expectations were less pessimistic.
What does this have to do with naked credit default swaps? As John Geanakoplos notes in his paper on The Leverage Cycle, such contracts allow pessimists to leverage (much more so than they could if they were to short bonds instead). The resulting increase in the cost of borrowing, which will rise in tandem with higher CDS spreads, can make the difference between solvency and insolvency. And recognition of this process can tempt those who are not otherwise pessimistic to bet on default, as long as they are confident that enough of their peers will also do so. This clearly creates an incentive for coordinated manipulation.
Whether or not these considerations are relevant in accounting for the troubles faced by Greece is an empirical question. But it does seem to be within the realm of possibility. At least the Chairman of the Federal Reserve appears to think so
Addressing concerns that financial firms have been engaging in trades to bet on a Greek default, Bernanke said that "using these instruments in a way that intentionally destabilizes a company or a country is counterproductive, and I'm sure the SEC will be looking into that."
Felix Salmon hopes that Bernanke "was just being polite to his Congressional overlords, rather than buying in to this theory." I hope, instead, that he is taking the theory seriously.


Update (3/7). Felix Salmon has another post dismantling a New York Times report on the issue. The Times is an easy target, and it is true that their reporting has been riddled with errors and inconsistencies, including a bizarre failure to distinguish between the systemic effects of selling credit default swaps without adequate capital reserves (as AIG did), and those of large scale naked CDS purchases (as hedge funds are alleged to have made).

But what I would like to see from Salmon is a clearer distinction between the use of CDS contracts for hedging (which even Münchau would probably agree has beneficial effects on the ease and cost of borrowing) and their use for speculation (which need not). The Sam Jones post does this, and makes clear that if current hedge fund activity is holding down CDS spreads, then prior activity must have had the opposite effect. One may then ask whether Greece (and its fellow PIGS) would be in such a precarious position without this prior activity: this is an empirical question that has yet to be convincingly answered.


Update (3/8). The comment thread following Mark Thoma's post on this is excellent. Leigh Caldwell questions the feasibility of banning naked credit default swaps and links to this post. Robert Waldmann argues that it is trivially easy to do so, and links to his September 2008 post making the case. Paine wonders whether the bank run model is adequate (and seems to be the only one taking the multiple equilibrium problem seriously). Bruce Wilder is concerned that insuring bonds against default destroys incentives for supervision and control. Gump explains the structure and incentive effects of CDS contracts with greater clarity than I've seen anywhere else. And mrrunangun makes an interesting proposal. There's plenty of criticism of my post, but I very much enjoyed reading the entire thread.

Also, I have edited the Münchau quote to remove his quip about banning bank robberies (this was a rhetorical excess, and unhelpful in advancing debate on the topic).


Update (3/8). Felix responds on empirical grounds, and he may well be right about Greece. But the following claim is clearly incorrect:
Countries have essentially no limit on how much they can tax or cut spending in order to make their debt repayments: just look at Latvia right now. I’m not saying they should always raise taxes and cut spending rather than default, of course — I’m just saying they can. Companies are in a very different boat, and if they can’t find the money to make a payment then they default: it’s as simple as that.
The problem with this is that while governments can change expenditure policies and tax rates, they do not have direct control over revenues or actual expenditures, which depend on the level of economic activity. If attempts to raise revenues are too contractionary, the deficit may increase rather than decrease. As Paul Krugman points out in this post, Spain had a budget surplus just three years ago, but "is running huge deficits now... a consequence, not a cause, of the crisis: revenue has plunged, and the government has spent some money trying to alleviate unemployment." Any attempt to raise taxes or cut spending in this environment could make it even harder for the country to meet its near term debt obligations. There is also political viability to consider: a government has to stay in power if it is to do anything at all.


  1. Prof. Sethi,

    What you've argued is true for every single derivative instrument that can be shorted and has high liquidity (and thus feeds back into price the asset on which it is a derivative) - oil futures, naked puts, anything.

    Second, why is it the utilitarian presumption that lending and borrowing must be made 'easy' - why not just 'right'? Any destabilizing effect that a CDS short has on primary lending and borrowing must be compared and contrasted with the effect that it has in acting as a lead indicator of a bad situation. I am surprised Felix Salmon and others aren't even arguing along these lines.

  2. Thanks for your thoughtful comment. It's true that trade in all derivative instruments will have feedback effects on the price of the underlying (otherwise arbitrage-based parity relationships would be violated), but the economic effects on the primary issuer can be very different. A firm can live with a fall in stock price that is driven by purchases of naked puts as long as it's cost of borrowing is not much affected. If there were some objective probability of Greek default, independent of its cost of borrowing, then CDS spreads would be nothing more than lead indicators of this probability. But I'm concerned about multiple equilibria here: the possibility that there may be more than one default probability that, if believed and acted upon, would be self-fulfilling. I wish Salmon would at least consider this possibility.

  3. I have a full blog post about this problem, and I argue that prohibition of naked CDS will only postpone, but not prevent runs on eurozone members.
    I also support naked CDS on the grounds that unlimited shorting is one of the assumptions behind the capital asset pricing model (CAPM) that is closely related to the efficient market hypothesis.
    The post is here:

  4. Thanks, I read your post. It is certainly possible that without naked CDS the liquidity crisis would simply have been postponed, but it is also possible that it could have been averted less painfully. Regarding your other point, you're right that allowing naked CDS contracts moves us closer to complete markets (Geanakoplos also makes this point). But I'm not persuaded that this is necessarily a good thing when we are faced with the problem of multiple equilibria.

  5. I find it interesting that DB wants to distance itself from the mess in Greece now when it didn't seem to have any problem getting intimately involved "pre-crisis"

    Interesting? Or obvious? Meanwhile, the predators have securitized everything that is not nailed down, and even things that are. Municipalities are just as likely victimized as entire countries (which we saw here). What do you actually do about this?

    I enjoyed your post, will be coming back.


  6. i would completely disagree with Felix Salmon and Sam Jones, both of which are by profession bloggers, and i am not familiar that they have expert knowledge on the subject.

    First of all, naked CDS do not add liquidity to the primary market, they take it away: by having a bank or an insurance company sell CDS protection, they go long the credit risk, equivalent to purchasing the bond. it would not make much economic sense to buy the bonds as well, that would effectively double the position size.

    The above explains as well why DB will NOT buy greek bonds outright: they can go long the credit risk with 20 times leverage and even charge a premium along the way, buying bonds is plain more costly and thus less profitable.

    The example of sovereign basis trade was not workable and still isn't. the added liquidity and transaction costs for hedge funds are so high that it does not make money at all and required in turbulent time tons of cash for margin calls (this is a 20 times levered play). If you examine closely data, you will see that the cost of CDS protection on greece for example has always been above the bond spread over bunds.

    And there is a tight correlation between the cost of CDS and bond yields on sovereigns. If a bond player wants higher yield, it may bid lower, but with bid to cover ratio higher than 1, that would still leave it empty handed. the next best place is the CDS market which commands as well a higher liquidity premium, but that does not matter if you hold till maturity. And here the arbitrage cycle closes: if CDS are much more profitable, bond and CDS prices will have to converge which pulls bond yileds up, because they are not traded on margin.

    hope this clears up the issue of any perceived benefits to naked CDS.

  7. "the case for banning them is about as a strong as that for banning bank robberies."

    You guys are over the top with this kind of talk. It proves to me you have no idea what you are talking about.

    I have a terrible secret to admit to. I speculate in bond prices. Sometimes I am long and sometimes I am short. I hope that this admission does not get me in jail like the bank robbers you liken me to.

    It is very easy to speculate. There are ETF's all packaged up with leverage of 300% to achieve my objectives. And this stuff is listed on the NYSE!!! You can trade it like water. There are no restrictions. Believe it or not this is LEGAL!!!

    There is no ETF for Greek bonds. If there were I would trade that. But there is not. So what is a poor bastard like me to do with my illegal ambitions to make a buck? CDS.

    Can you please tell me the difference between the exchange traded short bond ETFs and CDS? Is it more leveraged? Is that what you don't like about it? What is the difference? Is 200% leverage a good thing and 400% leverage a bad thing? Who are you to make this distinction? Why do you get to set the limits on the bets that I can make? You don't. And you never will.

    The ability to short something is the essence of an efficient market. When you take that away you end up with an illiquid issue that no one will touch. It is so easy to short bonds in the cash market. It is done every second of the day in every market out there, including Greek GBs. If you took that out of the market equation we would slip into a black hole faster than you can imagine. It would take us years to dig ourselves out of that hole. And when we crawled out guys like me would still be trading bonds from the short side.

    You folks have to get it through your heads that CDS is just a derivative of being short bonds. And there is nothing wrong with being short. It is no more evil than being long. It is central to the market process. Take that away and you will have not much left.

  8. Bruce, I agree that some of the rhetoric has been over the top, and I didn't like the bank robber comment either. But this is about the effects of leverage on systemic stability, not about whether or not you can short bonds. We've had the worst financial crisis and recession since the 1930's and it's worth looking at whether excessive leveraging and de-leveraging are implicated. Here's John Geanakoplos on the issue (see my earlier post for the reference):

    "Leverage dramatically increased in the United States and globally from 1999 to 2006. A bank that in 2006 wanted to buy a AAA-rated mortgage security could borrow 98.4% of the purchase price, using the security as collateral, and pay only 1.6% in cash. The leverage was thus 100 to 1.6, or about 60 to 1. The average leverage in 2006 across all of the US$2.5 trillion of so-called ‘toxic’ mortgage securities was about 16 to 1, meaning that the buyers paid down only $150 billion and borrowed the other $2.35 trillion. Home buyers could get a mortgage leveraged 20 to 1, a 5% down payment. Security and house prices soared.

    Today leverage has been drastically curtailed by nervous lenders wanting more collateral for every dollar loaned. Those toxic mortgage securities are now leveraged on average only about 1.2 to 1. Home buyers can now only leverage themselves 5 to 1 if they can get a government loan, and less if they need a private loan. De-leveraging is the main reason the prices of both securities and homes are still falling."

    The naked CDS debate is just a part of this broader problem. You can short bonds to your heart's content but the margin requirements for doing so have to be set with systemic stability (rather than trader preferences) in mind.

  9. Rajiv, if market is close to the negative equilibrium, prohibition of naked CDS can be a temporary solution in exceptional circumstances if other better solutions are politically unfeasible, just like temporary capital controls are sometimes the best solution during the currency crisis. In such case temporary prohibition of naked CDS is a good form of soft partial default. But I believe that naked CDS are welfare enhancing when markets are close to the good equilibrium, and I am concerned with the fact that if underlying fragility is not corrected, there is an increased risk (albeit not certainty) of a regular bond investor run in the future with much more adverse consequences.

  10. 123, why not simply adjust margin requirements on short sales to achieve these goals?

  11. Rajiv

    I think the phenomenon of self-fulfilling market expectations and expectations and reality being locked in a positive feedback process is what Soros emphasises in his theory of reflexivity. Incidentally, Soros raises similar concerns to yours in his recent FT article. The core concept doesn't' get as much attention as it deserves partly because Soros frequently overplays the relevance of the concept.

    Reflexivity is the elephant in the room that most "pro-market" commentators choose to ignore. On the other hand, "anti-market" commentators and even Soros himself sometimes use it to argue for a ban on naked CDS, short-selling on downticks etc. You're spot on in your assessment that the possibility of multiple equilibria/attractors needs to be incorporated in any sensible discussion of most markets, but especially credit markets.

    In my opinion, acknowledging the reflexive nature of markets does not mean that we need to ban the financial instruments that enable this self-fulfilling dynamic.

    Firstly, reflexivity only becomes a relevant force intermittently and in specific market conditions. This is a point Soros himself failed to emphasise in his book "The Alchemy of Finance" but has since acknowledged for example in this MIT speech. In most normal market conditions, the reflexive forces are drowned out by other negative feedback forces.

    Secondly, whether markets are reflexive or not usually depends to a large extent upon the choices made by the economic actor. This is especially true in markets like credit and fx. It is only when the entity is in a state of low resilience that markets are sufficiently reflexive to push it over the edge. David Merkel explains this notion here and I quote: "First, if a company or government has a strong balance sheet, and has a lot of cash or borrowing power, there is nothing that speculators can do to harm you. You have the upper hand. But, if you have a weak balance sheet, I am sorry, you are subject to the whims of the market, including those that like to prey on weak entities. Even without derivatives, that is a tough place to be." Even Soros admitted that the key reason why his Black Wednesday attack worked was that the ERM in Europe was rendered unsustainable by German reunification and the resultant attempts by the Bundesbank to quell inflation by hiking interest rates.

    So the question now is even if we accept everything I've said above, why not make some small changes to the market that make it less reflexive? Apart from the impact on market liquidity, I have a couple of other objections to this idea.

    First, on a pragmatic note, if there's anything that my recent experience has taught me, it is that most bans or restrictions on markets will be arbitraged away i.e. market participants will find a way to reconstruct the same position in another manner. Call it the Goodhart's Law of financial regulation.

    On a more fundamental note, removing reflexive checks incentivises economic actors to reduce slack and operate in a correspondingly less resilient fashion. So in the case of a sovereign borrower which cannot issue fiat money, removing reflexive checks and balances will incentivise the borrower to become correspondingly more profligate. This is the macro-stabilisation as a broader form of the moral hazard problem that I have written a few times about, most recently here. This is the stage at which I have to part ways with Soros who clearly believes that reducing the reflexivity of markets via market intervention is a feasible objective.

  12. After all that theorising, let me end with a modest proposal. One situation where a clear conflict arises is when a bond-holder who has hedged himself multiple times over could be incentivised to drive a firm into default by voting accordingly. This problem can be solved by more mundane contractual and legal remedies that ensure that only those bondholders with aligned economic interests have voting rights as David suggests here (Incidentally, this problem can also arise with equityholders who can be incentivised to vote against value-creating measures due to their short position).

  13. Rajiv,

    So your only concern is how much margin I put up? Not to worry on that score. I can only buy, not write. I am no AIG with a AAA. Keep in mind what I might buy for 300K I hoping some greater fool buys from my at $500k. But it could turn out differently.

    You are worried about the level of leverage in the CDS market. Again I would suggest you look elsewhere for a problem. A primary dealer (and many, many other players) can borrow bills, sell them for cash and buy 30 year bonds and do this with just about no equity. The numbers are big. No problem whatsoever to do this for $10-20b. This is no big deal at all. It happens constantly. It happens with JGBs, Euro sovereigns and treasuries. The numbers and leverage involved in these big markets makes CDS sandbox risk.

    Don't sweat the small stuff.

  14. MR, thanks for your comments, insightful as always.

    Soros has some interesting ideas but promotes them a bit too heavily and is often dismissive of others. I was at a conference at the Santa Fe Institute last year at which both he and Geanakoplos were present. John presented his work on Leverage cycles and Soros (the discussant) dismissed it out of hand on methodological grounds. This is a pity. There are plenty of problems with equilibrium models but one can approach a question from many perspectives and Geanakoplos is using standard economic methodology in very creative and promising ways.

    In any case, you've given me lots to think about. I've already read most of the posts you linked to but will take another look and get back to you if anything comes to mind.

  15. Rajiv, I think that countercyclical leverage regulations are important for stabilizing AD on eurozone-wide basis, but their general nature means that they will not help Greece separately.
    If some supranational authority has determined that Greece is close to a bad equilibrium, direct assistance (a loan package) is much more preferable to intervention in margin requirements of a specific instrument, for reasons of effectiveness and accountability.
    I will also add that naked CDS provide identical leverage both to the optimistic and the pessimistic side of the transaction.

  16. 123, your arguments are perfectly reasonable. The main point of my post was to draw attention to the fact that for borrowers engaged in maturity transformation, default probabilities are sensitive to interest rates, and hence depend on expectations about these probabilities, and the degree of leverage available to people with varying expectations.

    An important objective of financial market reform should be to coordinate expectations on more rather than less efficient equilibria. You do indeed seem to be taking the multiple equilibrium issue seriously, as does Macro in his comment, and even Felix in his response to my post. As long as the CDS debate takes place with these considerations in mind, my purpose is served; I am not wedded to any particular policy response.

  17. BruceKa...,
    I do not know if you live of the 2% management fee or off the 20% performance fee, but it looks like you do not understand the difference between shorting something via short sale or ETFs on one side and shorting via CDS on the other side.
    The SEC has stipulated that short sales cannot exceed the total amount of equity. In order to establish further short positions, you have to trade options where positions have caps as well.

    In the CDS market, you can short as much as you want, and the sheer size of those positions at 20 times leverage is bothering. Why are big buy-siders of CDS vehemently against CDS clearing houses? They say that just by taking away their right to net off their positions with counterparties makes trading CDS unprofitable business.
    And yes, anyone who wants to short a bond can do it by borrowing the security and short selling it, but that does require money, no 20 times leverage here.

    Here comes the sanity check question: if an investment makes economic sense only when the risk is skewed by a multiplier of 20 to the downside, should we have such investments allowed at all?

    And it seems from your own comments your investment mantra for everything is: buy early and hope a greater fool will bid more after time for your 'investment'. Sad to say but neigher what you are saying or doing speaks well of your capacity.

  18. It seems to me that one of the questions that flows from the financial crisis is what kind of regulation should be applied to what kind of instrument.

    Naked guarantees of legal obligations are made all the time. For example, there is the entire reinsurance market.

    But, much of the time naked guarantees are regulated by insurance regulators, who ask the right questions and have a more useful way of forcing companies to evaluate and set aside reserves for the risks that are being taken, than by securities regulators, who care mostly about truthful disclosure within some very narrow parameters and largely back out if the investments are made by accredited investors, which most big financial players are.

    A naked CDS regulated as an insurance product might be less of a systemic risk to the economy than a naked CDS regulated as a security.

  19. Andrew, agreed. In particular, AIG would have written far fewer CDS contracts (and at very different spreads) if the company had been forced to set aside adequate capital reserves.

  20. My thought is very simple. allow everything that is possible under the sun. But, DON'T be partial while rescuing the guys when they get stuck. "Banana Ben" and "Timmi the henchman" rescued the folks with whome they had illicit relationships. The American fool paid for it.Haha. Just think about it. GoldmanSucks would have been gone without that AIG payment,right. Have CDS on everything, but first shut down the Fraud machine. I cann't imagine that a CDS speculator gets money at 0% from Bernanskie.Unthinkable scam of highest order. Some economists even suspect that the Vampire sqiud rigged the whoel game from the beginning itself.Timmy the elf" was a co-conspirator.

  21. Rajiv make a good case of the pros and cons.

    Now ask the question, "Can the CDS market work efficiently if there are no participants?"

    Obviously not, is the answer. Without CDS as an option for global bond investors, there would be far fewer willing investors. Surely we can agree with that.

    I keep telling you that there can't be a market that absorbs and takes risk unless there are people who have an incentive to take and manage those risks.

    I know you hate speculators, but there is so much evidence that says you're wrong in that conclusion. The CDS market is no different.

    You may turn up your nose at this and try to make it go away. But beware. If you get what you want the lights will go out (fairly quickly) on the global bond market that we are all so dependent upon.