User 143167

Writing CDS on U.S. Government Debt: What's the Point?

No, it is not speculating. The US government debt CDS is priced in Euro. Its meaning is quite clear, even though the government can always avoid a default by monetarizing its debts, its currency will have to devaluate as a result. If the government thinks the risk of the consequency of a currency plunge is larger than a debt default, it may eventually choose to default (like Russians did in 1998). Either way, you get protected by CDS contracts denominated in a foreign reserve currency like Euro.