Hi David,
I am getting very confused with the impact of the factors on CDS minus Bond basis (especially positive basis and negative basis as described below).
I feel like i am missing something extremely basic causing all the factors influence to be illogical in sign.. I would sincerely appreciate if you can kindly spend some time explaining how to think through this.
eg., Cheapest to Deliver option : CDS value should improve --> CDS Spread should decrease (-ve basis would be my logical derivation).. Gone Wrong..
Bond Trading Above Par : CDS is indexed to Bonds at Par. So if the Bond price increases, Bond Yields decrease. --> +ve spread would be my logical derivation --> gone wrong..
So fundamentally i am missing something.. Kindly spend time how you think though each of these factors ..
I am getting very confused with the impact of the factors on CDS minus Bond basis (especially positive basis and negative basis as described below).
I feel like i am missing something extremely basic causing all the factors influence to be illogical in sign.. I would sincerely appreciate if you can kindly spend some time explaining how to think through this.
eg., Cheapest to Deliver option : CDS value should improve --> CDS Spread should decrease (-ve basis would be my logical derivation).. Gone Wrong..
Bond Trading Above Par : CDS is indexed to Bonds at Par. So if the Bond price increases, Bond Yields decrease. --> +ve spread would be my logical derivation --> gone wrong..
So fundamentally i am missing something.. Kindly spend time how you think though each of these factors ..