Bloomberg On Negative Basis

Good article by Bloomberg catching up on the negative basis trade, and specifically on the dynamics basis holders exert on companies which are staring at the bankruptcy abyss. In a nutshell basis holders will do all they can to accelerate the filing of corporate issuers of bonds and CDS due to the asymmetric payoff they stand to gain on the CDS leg versus the bond leg.

"Defaults are one of several ways that basis holders can benefit, so it would not surprise me if names with high concentrations of basis holders encounter resistance in their efforts to restructure,” said Michael Anderson, a high-yield debt strategist at Barclays Capital in New York.

Bloomberg also brings up the point we have been pounding the table on, that CDS does not promote "bear raids" as Dick Fuld put it, but rather is a facilitator of expressing risk in distressed names:

“You’ve got more information from a side of the market that didn’t exist before,” said Brian Yelvington of CreditSights. “People point at CDS causing all of this volatility. To me, it’s always been there. People haven’t been able to place the bets they would have liked.”

Zero Hedge has written extensively on the topic of negative basis trade previously. For thoughts posted on the topic, please do a site query on the term.