What is the significance of CDS Basis?

Whenever you have high (say, relative to history) positive or negative basis, you are basically faced with a situation where -- because prices are inversely proportional to spreads -- the CDS is cheap relative to bonds (positive basis) or bonds are cheap relative to CDS (negative basis). read more

CDS basis = CDS spread – bond spread It is assumed that at or near maturity of the bonds, the negative basis will eventually narrow (heading toward the natural value of zero). As the basis narrows, the negative basis trade will become more profitable. read more

The credit default swap basis: illustrating positive and negative basis arbitrage trades A basis exists in any market where cash and derivative forms of the same asset are traded. read more