A CDS buyer is paying a swap spread of 53 basis points per year. Currently CDS spreads for the same reference obligation is 50 basis points. Who faces the counterparty risk? A. CDS buyer and seller B. CDS buyer C. CDS seller
Since the market spreads are lower, the seller faces risk that the buyer may stop making the spread payments. The buyer faces the risk that the counter party defaults if a credit event occurs. (Study Session 17, LOS 53.b)
