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In the cash bond and future basis trade, the net basis is like the option (quality option and time option) premium, right? So, it should be positive. Sometimes I see it went to negative, so does this mean an arbitrage opportunity? Thanks

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Reasons why the net basis might trade negative from time to time : 1) if a credit crisis occurs, investors do not have the resources to invest in the basis. For example , banks are unwilling or unable to provide repo financing. Or, investors do not have the cash required for the haircut on the repo financing. Hence the basis traded negative during the 2008 financial crisis. 2) there have been instances in the past (pre-2008) when some investors (possibly illegally) try to corner the market in the ctd, for example by refusing to lend it into the repo market. This can result in investors being scared to hold the basis , since there is an onerous penalty for failing to make delivery into the futures contract.

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Ignoring the embedded optionality (CTD option, wild card option, etc) the basis is the cost of funding the position. Of course one would need to account for the coupon and the accrued interest to the maturity date of the future, as well as that of the underlying deliverable bond. Also, one would need to adjust the futures price by multiplying by the conversion factor to compare the futures price to the underlying deliverable bond.

The CME has a good publication that explains how all of the components about are tied to the basis. It can be found here:

https://www.cmegroup.com/education/files/treasury-futures-basis-spreads.pdf

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