Bond-CDS basis trades have 'stopped working', hedge funds say

Arbitrageurs have exited trades, leaving basis structurally higher

out-of-order-2-shutterstock-223147711-converted
Risky proposition: hedge funds are steering clear of CDS basis trades

It looks like a great trade – at least on paper. For the past couple of years, US high-yield bonds have been trading anywhere from 90 basis points to 170bp cheaper than credit default swaps (CDS) on the issuers, while the basis on investment-grade names has hovered between 30bp and 70bp.

The credit group at Goldman Sachs highlighted the mispricing in a research report published on June 2, highlighting "ample opportunities to exploit anomalies that exist in certain names."

Not so long ago, hedge

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact [email protected] or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact [email protected] to find out more.

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: