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Insurers urged to explore positive basis trades

Arbitrage opportunities on government bonds could bring yield boost

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Insurers should take advantage of positive basis between European government bonds and their associated credit default swaps (CDSs) to gain a yield enhancement in the current low interest rate environment, according to bankers.

Positive basis exists when the spread on a CDS is greater than the spread on its underlying bond. Where this situation exists, insurers can sell their government bonds via

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