[Verse 1]
When companies borrow, there's always a chance
They might default and ruin your stance
But there's a contract that shields you from pain
Like insurance for bonds when borrowers wane
You pay a premium, quarterly due
For protection when credit turns blue
[Chorus]
CDS, CDS - Credit Default Swaps
Insurance for your bonds when the payment stops
Buyer pays the seller, premiums flow
Till credit events make the payouts grow
Protection seller takes the hit
When reference entities can't commit
[Verse 2]
Three parties dancing in this swap game
Reference entity bears the credit shame
Protection buyer fears the default risk
Protection seller takes the chance, so brisk
Notional amount sets the coverage size
While spread determines the premium's price
[Chorus]
CDS, CDS - Credit Default Swaps
Insurance for your bonds when the payment stops
Buyer pays the seller, premiums flow
Till credit events make the payouts grow
Protection seller takes the hit
When reference entities can't commit
[Bridge]
Bankruptcy, failure to pay the debt
Restructuring triggers you won't forget
Settlement comes in two different ways
Physical delivery or cash that pays
Credit markets use these swaps to hedge
Speculation drives them to the edge
[Verse 3]
Naked swaps mean no underlying bond
Covered swaps protect what you're fond
Market makers quote the bid and ask
Price discovery becomes their task
Single names or baskets you can choose
Maturity dates from short to long-term blues
[Chorus]
CDS, CDS - Credit Default Swaps
Insurance for your bonds when the payment stops
Buyer pays the seller, premiums flow
Till credit events make the payouts grow
Protection seller takes the hit
When reference entities can't commit
[Outro]
From corporate bonds to sovereign debt
CDS markets place their bet
Risk transfer tool or speculation game
In credit markets, they stake their claim