CDS-Bond Basis
The difference between a name's CDS spread and its bond's credit spread over Treasuries (basis = CDS_spread minus bond_credit_spread). In a frictionless market the basis should be approximately zero (textbook no-arbitrage). Persistent negative basis (CDS cheaper than bond spread) typically signals funding stress: the bond-plus-CDS arbitrage requires balance-sheet capacity and repo financing to hold the bond, and when haircuts widen or dealer balance sheets are constrained the carry exceeds the basis. The 2008-2009 negative basis (often -100 bps or more for IG names) was a hallmark indicator of the broader credit-market funding crunch.
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American Option · Asian Option · Barrier Option · Basket Option · Butterfly Spread · Calendar Spread
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