The difference between the market spreads and the model spreads (theoretical spreads calculated using a model). For example, the theoretical spreads for a credit derivative index should be equal to the average of spreads of all individual credits, but quite often that is not simply so, due to market dynamics. This leads to a basis to theoretical. The basis to theoretical is a spread based on a traded price and the weighted average of the spreads of all constituents included in the index.
This basis spread often provides a forward indicator of the direction of the market. When the market price of an index exceeds its theoretical value (the average of single-names), a positive basis to theoretical results. When the index price is lower than the average of the single names, the basis would be negative. A positive basis is typically caused by the existence of more market participants looking to buy protection than those looking to sell, and therefore typically indicates a bearish view on credit spreads. A negative basis tends to be the result of more protection sellers than protection buyers, reflecting a positive view on credit spreads.
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