CDS

Credit Default Swap sellers are making a killing. Just look at this deal:

Sellers of Beazer credit-default swaps are demanding $2 million upfront and $500,000 a year to protect $10 million in bonds, according to CMA Datavision in London. (Bloomberg)

No wonder hedge funds that invest in corporate bonds are going belly up. In fact, anyone who uses leverage is probably going belly up. "Safe" bonds are not safe if you use leverage. Everyone who was caught on that side of the market is losing to the people who are selling swaps to hedge default now. The problem is that hedging costs almost as much as has been already lost. Liquidity is going to dry up as people pull their money out of the market.