Synthetic CDS

A synthetic credit default swap (CDS) is a financial contract that allows investors to take on credit risk without owning the underlying asset, typically bonds or loans. Essentially, it lets investors bet on whether a borrower will default on their debt. Instead of transferring an actual loan, it involves trading derivatives that mimic the risk and returns of the debt without direct ownership. This can provide flexibility for investors to hedge risks or speculate on credit quality, but it also involves complexities and potential risks tied to the underlying credit events.