How we are hedging our credit risk by going short in the Credit Default Swap as we are long in the bond?
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Yes. This seems a bit opaque. In the Fixed Income Readings, the concept of Long-Short CDS is written from the point of view of Risk. As in If you are short CDS, it means, you are short on the risk of the reference entity and hence, what you do is you buy protection.
However, in HF Strategies, Long Short has been written from the POV of the Trade direction, i.e. Protection Buy/Sell = Long/Short CDS = Short/Long the Bond.
So, logically, if they say Short CDS = Long the Bond, which in turn refers to taking on more exposure to the bond. Maybe they’re trying to say that the existing position in the bond is short and with a short CDS, we’re trying to hedge away the risk. But then again, it’s really opaque. You may mail CFA Institute regarding the same.