What in the Heck is CDS

is a hedging instrument. It's a Credit Derivative Contract, not traded in the exchange, done between two parties. Protection Buyer Protection Seller and Reference Entity [a Bond Obligation, of a corporation or government]

The protection buyer makes quarterly premium payments -- the “spread” -- to the protection seller. If the reference entity defaults, the protection seller pays the buyer the par value of the bond in exchange for physical delivery of the bond, although settlement may also be by cash or auction.[1][2] A default is referred to as a 'Credit Event' and include such events as failure to pay, restructuring and bankruptcy.[2] Most CDS’s are in the $10 million–$20 million range with maturities between one and 10 years.