Saturday, November 13, 2010

Negative basis in Ireland

FT Alphaville looks at the movement of Irish bonds vs CDS. In this case the bond market is leading the CDS as selling of bonds (to raise, or prevent the need to post, collateral at LCH) has been the main factor behind the move. Usually, it is the more liquid CDS that makes the move.
"Ireland joined Greece this week in the negative basis club. That is, the five-year asset swap spread for Ireland outpaced movement in equivalent credit default swaps. So (in basic terms) spreads in the CDS market were trading lower than in the cash market for Ireland."

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