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Italy shock shows sovereign CDS still active – flaws and all

(Reuters) – Italy’s recent bond shock showed that the financial derivatives market designed to insure against sovereign defaults hasn’t been killed off by doubts about whether those contracts would pay out when the time came. The market for sovereign credit default swaps (CDS) is half the size it was six years ago at the height of the euro zone debt crisis, following a government clampdown and a patchy record as a hedge for a credit event.

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