Strategy lab
Every strategy from 151 Trading Strategies and all 101 Formulaic Alphas as formulas you can edit and backtest on ten years of daily stocks, ETFs, futures, forex and crypto data. Free, in your browser.
5.14Fixed incomeReference
CDS basis arbitrage
When a bond’s credit spread exceeds the cost of insuring it with a credit default swap, buy the bond and the protection to lock in the difference.
Why there is no chart
Bond yields and CDS spreads for the same issuer.
The lab runs on daily prices for stocks, ETFs, indexes, futures, currencies, crypto and Treasury yields. This strategy from 151 Trading Strategies depends on data outside that set, so it is explained and formalised here rather than backtested.
Hypothetical backtests on daily closes with no slippage unless you add costs. Survivorship bias applies: the stock list is today’s large caps. For learning, not investment advice. Data: Yahoo Finance via yfinance.
- Source
- 151 Trading Strategies
- Section
- 5.14 · Fixed income
- Asset class
- Fixed income
- In the lab
- Explained, not backtested
CDS basis arbitrage (5.14)
When a bond’s credit spread exceeds the cost of insuring it with a credit default swap, buy the bond and the protection to lock in the difference.
Key equation
Data it needs
Bond yields and CDS spreads for the same issuer.
More in Fixed income
- 5.2 Bullets
- 5.3 Barbells
- 5.4 Ladders
- 5.5 Bond immunisation
- 5.6 Dollar-duration-neutral butterfly
- 5.7 Fifty-fifty butterfly
Source: Kakushadze, Z. and Serur, J. A. (2018). 151 Trading Strategies. Palgrave Macmillan. SSRN 3247865. Summaries are our own.