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Economics

Sovereign Default Risk and Credit Default Swap Pricing

Quick fact

The CDS market for sovereign debt emerged in the late 1990s, and during the 2010 European debt crisis, Greek CDS spreads soared above 1,000 basis points, implying a high probability of default.

Why this is interesting

Imagine lending money to a country—what if it refuses to pay back? How do investors protect themselves, and what does that protection cost?