Hi Colin,
I seem to be getting conflicting views on the relative liquidity of CDS contracts versus physical. My understanding was the the CDS market is far larger/liquid than the physical bond market, but I did a past paper question [SA5 Apr15 Q1 (viii) & (ix)] which seems to allude to the opposite.
The only explanations I could come to was
(a) CDS contracts are more liquid than physical when looking at longer duration bonds but not shorter duration (the Apr15 question was referring to bonds with duration of <3 years)
(b)L iquidity/market conditions of CDS contracts (and bonds) were different prior to the financial crisis of 2008-09 where CDS were more popular - but now the CDS market is far smaller
Any thoughts?
Last edited by a moderator: Mar 21, 2019