Credit Default Insurance

The use of a financial agreement - usually a credit derivative such as a credit default swap, total return swap, or credit linked note - to mitigate the risk of loss from default by a borrower or bond issuer. 



|||Credit default insurance allows for the transfer of credit risk without the transfer of an underlying asset. The most widely used type of credit default insurance is a credit default swap. Credit default swaps transfer credit risk only; they do not transfer interest rate risk. Total return swaps transfer both credit and interest rate risk.