Sovereign CDS - Payment & Pricing
Can someone explain CDS payments. For example:
Say I own $10,000,000 in Italian 5-Yr Bonds. For protection (via a CDS) I would have to pay $376,600 (http://www.cnbc.com/id/38451750)? I'm confused about the payment if my 5-yr bond expires in 3 months and I still want protection. $376,600 is the price for the full 5 years (60 months) so does protection cost $6276.67 a month and for 3 months would be 18,830? Is that how it works or is there more pricing complexity (time flow of money, and so forth)?
Also regarding the hedge do some investors buy a CDS even if the insurance will cause a loss on the overall bond position.... perhaps to eliminate tail risk?
Lastly, say a country is auctioning bonds for the first time. How are the first swap prices established? If it's not exchange-traded would we ever see the swap deal prices?