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wedrifid comments on US default as a risk to mitigate - Less Wrong Discussion
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There isn't a difference in how shorting works. There is a difference in what bonds and stocks are. Stocks are based on the value of a company, which can obviously go through the roof. A bond is a promise to pay a fixed amount of money over a specified time. The monetary value of an IOU for $10 + $1 interest paid over a week is never going to be greater than $11 now, that'd be really weird. Bonds can lose all their value catastrophically if the issuer loses credibility but they can never gain value above "Bond with the specified terms assuming unquestioned reliability of issuer".
...so there is a limited downside risk unlike shorting stocks?
And the upside is still (theoretically) the full price at the time you short it because it could in principle drop to zero if the debtor defaults? Is that correct?
Correct on both counts.