Publications

Negative Basis Trade Basics

November 20, 2006
Derivatives Week

A negative basis trade is a credit derivative trade in which the buyer of a debt instrument purchases credit protection in the form of a credit-default swap. The negative basis trade protection seller universe has been dominated by AAA-rated financial guaranty insurance companies. The purpose of this Learning Curve is to discuss the major negotiating points in documenting negative basis trade with a monoline insurer.