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Opportunistic

Basis packages: specific arbitrage opportunities

Synthetic vs. real bond

Basis packages are the purchase (sale) of specific credit exposure in the cash market and the simultaneous sale (purchase) of the same risk in the CDS market, ideally at two different prices.

Two “basic” basis strategies.

1]A “negative basis” package strategy (buy bond and buy protection) is typically motivated by a relatively low spread in the CDS market relative to comparable cash bond spread (i.e., an attempt to earn a risk-less return by buying and selling the same credit in different markets).

2]A “positive basis” package strategy (sell bond and sell protection) is the opposite — an attempt to take advantage of a relatively high CDS spread relative to the cash market.

Using credit instruments practically

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