Setting the basis
The cash-CDS basis in the auto sector, specifically FMCC and GMAC, has increased in recent weeks. How should investors react to this development?
In the charts below, provided by Jeffrey Rosenberg, head of credit strategy research at Banc of America Securities, one can see how dramatically the CDS-cash basis has increased in the auto sector recently. Banc of America Securities calculated the basis by interpolating the credit default swaps with the 3s/5s credit curve to reconcile the incommensurate maturities between the cash and CDS markets. Ford Motor Credit Corp.’s 7.375% paper due 2009 is used in the top graph and General Motors
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