Investing Insights - Giving Credit to Credit Linked Notes (CLN)
Beyond Markets
00:00
How to Choose the Right CLN for Your Needs
Dumplings or jiao zu are an Asian delicacy made of a thin-flour skin that wraps a filling of meat or vegetable. A reference entity with a higher credit risk may offer a higher return, but it also means the market is pricing a higher possibility of bankruptcy and failure to pay. When a credit event occurs, it usually leads to a loss of principal and future coupon payments. The effect spans across all CLN's that are linked to the same reference entity regardless of tenor, currency, or issuer of the CLN.
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