European credit default swaps tightening lags cash market

This tightening differential has created a modest ‘default basis’ – the difference between the credit default swap spreads and the bond asset swap spread. “There’s a lot more interest in cash now than in credit default swaps,” said one London-based trader. “We are seeing some basis widening here, but the default basis is still at a relatively low level compared with the past year.”

Bank of America research noted the same trend in the US credit markets, as trading resumed following the festive

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