Exploring the CDS-Bond Basis

Jan De Wit ()
Additional contact information
Jan De Wit: NBB, Financial Markets Department

No 104, Working Paper Research from National Bank of Belgium

Abstract: 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.

Keywords: Bond; Co integration; Credit; Risk Neutrality (search for similar items in EconPapers)
JEL-codes: C12 C19 C23 G15 G19 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2006-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

Downloads: (external link)
https://www.nbb.be/doc/ts/publications/wp/wp104en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:200611-16

Access Statistics for this paper

More papers in Working Paper Research from National Bank of Belgium Contact information at EDIRC.
Bibliographic data for series maintained by ().