For credit default swaps, when spreads narrow the price appreciates. This price appreciation benefits an investor who sells CDS protection.
Why if we sell protection does the price appreciation benefit the investor who sells. I would think the appreciation benefits buyer of protection. I must be confused about basic of how work.
CDSs work the other way around. If you bought protection you are short credit risk, meaning that if credit risk worsens (spreads widens) you win.
If you sell protection you are long credit risk so if spreads narrow you win.
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Thank you very much. I was having much tough time with new 2022 reading in fixed income. This make clear.
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