Fixed Income Relative Value Analysis: A Practitioners Guide to the Theory, Tools, and Trades

Chapter 13

Cross-Currency Basis Swaps

Introduction

The discussion of swap spreads in Chapter 8 and Chapter 9 was limited to the special case of a single currency and the absence of credit risk. In the following, these conditions are relaxed.

In this chapter, we introduce the cross-currency basis swap (CCBS), and in the subsequent chapter we discuss the ways in which the CCBS can extend our analysis to include relative value comparisons between bonds denominated in multiple currencies.

In Chapter 15, we discuss the features and potential pitfalls of credit default swaps (CDS). And then in Chapter 16, we discuss the ways in which CDS can extend our analysis further, to include bonds that are subject to default risk.

Chapter 14 and Chapter 16 perform ...