Which is a characteristic of credit default swaps?

Credit default swaps (CDS) are financial derivatives that provide a way for investors to hedge against the risk of default on debt instruments, such as bonds. One of the key characteristics of credit default swaps is their maturity, which typically ranges from 1 to 10 years. This duration allows market participants to manage their exposure to credit risk over a significant period, reflecting the time frame within which they may anticipate a potential default event.

The nature of their maturity is crucial, as it aligns with the timelines of underlying credit events, making them valuable tools in managing credit risk. This characteristic distinguishes CDS from many other financial instruments that may have more varied or shorter maturities.

The other options highlight aspects that are not true regarding CDS. For instance, they can indeed be traded in secondary markets, which adds liquidity to these instruments. CDS payouts are related specifically to credit events (such as defaults), not equity fluctuations, and while single-name CDS might not be standardized or traded on organized exchanges, many CDS, particularly index-based or those in more developed markets, can be standardized and traded, but not necessarily on organized exchanges.

Understanding these characteristics helps grasp how credit default swaps function within the broader framework of financial risk management.