If you are concerned about hedging against the risk of widening credit spreads, would you use a Total Return of Credit Default Swap?

Answer rating: 100% (QA)

No a Total Return Swap TRS would not be the ideal instrument to hedge against widening credit spreads Heres why Focus of TRS A TRS is a derivative contract that tracks the total return price appreciation interest payments of an underlying asset typically an index Its used for speculation or to gain exposure to the total return of the index not specifically for credit risk Hedging Credit Spreads To hedge against widening credit spreads you want an instrument that benefits when the creditworthiness of an issuer deteriorates credit spread ... View the full answer