Credit default swap

A kind of insurance contract against a company failing to repay its debt. When its price rises, traders think the risk of that company not paying its debts has gone up.

CDS prices are quoted as a yearly cost to insure $10 million of a company’s debt. They are a quick read on how worried lenders are.

Also called: credit default swaps, CDS.

Related terms

  • Free cash flow: The cash a company has left after paying for its day-to-day business and its capex. It's the money it could use to pay dividends, buy back shares or pay down debt.

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