Applications of CDS to bond portfolio management

Abstract

This article illustrates two fundamental uses of credit default swaps (CDS) in managing bond portfolios. The applications include CDSs in a buy-and-hold strategy to optimize a portfolio’s return-to-risk profile and employing CDS indices to efficiently replicate corporate bond returns. Each application is thoroughly examined, demonstrating how CDS can serve as a versatile tool for mitigating credit risk while striving for higher returns.