Exploring the CDS-Bond Basis

Arbeitspapier

Markets for credit default swaps (CDS) and bonds of the same reference entity and maturity are bound by no-arbitrage conditions. Indeed, using a large data set we show that CDS premia and par asset swap spreads are mostly cointegrated. Nonetheless, the average CDS-bond basis (i.e. the difference between both measures) is positive in the period 2004-2005. We detect fourteen different economic basis drivers, which make the basis firm-specific and time-dependent. Furthermore, we describe the basis smile, and illustrate that the average basis is the lowest for five year maturities of corporate credits denominated in euro.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: NBB Working Paper ; No. 104

Classification and Topics

• Classification: Wirtschaft ; Hypothesis Testing: General ; Econometric and Statistical Methods: Other ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; International Financial Markets ; General Financial Markets: Other
• Subject: Bond ; Co integration ; Credit ; Risk Neutrality ; Kreditderivat ; Kreditversicherung ; Anleihe ; Risikoneutralität ; Euro ; US-Dollar

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): De Wit, Jan
• Event: Veröffentlichung
• (who): National Bank of Belgium
• (where): Brussels
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/144317
• Last update: 10.03.2025, 11:42 AM CET