From Dr Hans Byström.

Sir, Credit default swap spreads are admittedly very high these days but I still don’t think they are as “fantastic” as suggested by Paul J. Davies (“Realm of the fantastic takes hold of credit insurance rates”, October 24). What Mr Davies seems to forget is that bonds pay coupons and that the net present value of a $10m bond’s coupons most likely is close to the net present value of the cost of insuring against the bond defaulting. In other words, the $2.75m paid in CDS insurance fees is (at least) partly offset by the coupons, and his comparison with the car buyer isn’t perfectly valid.