what are the benefits of credit default swaps 
credit default swaps are beneficial for two main reasons hedging risk and speculation to hedge risk investors buy credit default swaps to add a layer of insurance to protect a bond such as a mortgage backed security from defaulting on its payments in turn a third party assumes the risk in exchange for a premium by contrast when investors speculate on credit default swaps they are betting on the credit quality of the reference entity 1the bottom linecredit default swaps are sold to investors to mitigate the risks of underlying asset defaults they were highly used in the past to reduce the risks of investing in mortgage backed securities and fixed income products which contributed to the financial crisis of 2007 2008 and the european sovereign debt crisis 410