medium · Corporate Credit Analysis ratings
A credit analyst observes a 'positive basis' on a corporate name, where the 5-year CDS spread is 150 bp and the cash bond Z-spread is 100 bp.
What does this 'basis' of +50 bp most likely signal?
- The market currently believes this corporate bond issuer is about to receive an upgrade soon.
- Technicals or funding costs make it relatively more expensive to buy protection than to hold the bond.
- The underlying cash bond is significantly more liquid and easily traded than the corresponding CDS contract.
- A massive short squeeze is currently occurring and distorting prices across the cash bond market right now.
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