Authors: Nina Boyarchenko, Pooja Gupta, Nick Steele, and Jacqueline Yen
-
-
-
The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
Need to file a report with the New York Fed? Here are all of the forms, instructions and other information related to regulatory and statistical reporting in one spot.
The New York Fed works to protect consumers as well as provides information and resources on how to avoid and report specific scams.
-
-
-
The New York Fed provides a wide range of payment services for financial institutions and the U.S. government.
The New York Fed offers the Central Banking Seminar and several specialized courses for central bankers and financial supervisors.
The New York Fed has been working with tri-party repo market participants to make changes to improve the resiliency of the market to financial stress.
-
-
-
We are connecting emerging solutions with funding in three areas—health, household financial stability, and climate—to improve life for underserved communities. Learn more by reading our strategy.
The Economic Inequality & Equitable Growth hub is a collection of research, analysis and convenings to help better understand economic inequality.
The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
-
Economic Policy Review
Trends in Credit Basis Spreads
Volume 24, Number 2
October 2018
October 2018
JEL classification: G12, G13, G28
Market participants and policymakers were surprised by the large, prolonged dislocations in credit market basis trades during the second half of 2015 and the first quarter of 2016. In this article, we examine three explanations proposed by market participants: increased idiosyncratic risks, strategic positioning by asset managers, and regulatory changes. We find some evidence of increased idiosyncratic risk during the relevant period, but limited evidence of asset managers changing their positioning in derivative products. Although we cannot quantify the contribution of these two channels to the overall level of spreads, the relative changes in idiosyncratic risk levels and in asset manager derivative positions appear small compared with the observed spreads. We present the mechanics of the CDS-bond arbitrage trade, tracing its impact on a stylized dealer balance sheet and the return on equity (ROE) calculation. We find that, given current levels of regulatory leverage, the CDS-bond basis needs to be significantly more negative than pre-crisis levels to achieve the same ROE target.
Author Disclosure Statement(s)
Nina Boyarchenko
The author declares that she has no relevant or material financial interests that relate to the research described in this paper.
Pooja Gupta
The author declares that she has no relevant or material financial interests that relate to the research described in this paper.
Nick Steele
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
Jacqueline Yen
The author declares that she has no relevant or material financial interests that relate to the research described in this paper.
The author declares that she has no relevant or material financial interests that relate to the research described in this paper.
Pooja Gupta
The author declares that she has no relevant or material financial interests that relate to the research described in this paper.
Nick Steele
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
Jacqueline Yen
The author declares that she has no relevant or material financial interests that relate to the research described in this paper.
By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement. 
