basis risk vs spread risk

This is a discussion on basis risk vs spread risk within the First Steps forums, part of the Reception category; is there a difference between the two? i've read some threads and searched online and am still not sure. could ...

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Old Sep 1, 2010, 4:56am   #1
Joined Jul 2010
basis risk vs spread risk

is there a difference between the two? i've read some threads and searched online and am still not sure. could someone please clarify for me (maybe with an example) what is basis risk?

thanks
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Old Sep 1, 2010, 9:02am   #2
 
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Re: basis risk vs spread risk

Depends on the context... What's the asset class?
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Old Sep 1, 2010, 4:04pm   #3
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Re: basis risk vs spread risk

rookie77 started this thread swaps and treasuries?
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Old Sep 1, 2010, 5:13pm   #4
 
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Re: basis risk vs spread risk

In fixed income mkts:
basis - spread between cash bonds and bond futures (occasionally, people also talk about basis in the context of bond - CDS spread)
spread - aka swapspread, aka asset swap, aka TED; spread between a treasury instrument (cash bond or bond future) and a LIBOR instrument (swap or Eurodollar future)

Make sense?
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Old Sep 1, 2010, 11:24pm   #5
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Re: basis risk vs spread risk

rookie77 started this thread 1. Do you only have basis risk when hedging? For ex. you are long bond futures and short cash bonds then you have basis risk? And if you are long both bond futures and cash bonds, there is no basis risk?

2. If I am long the 10 yr treasury, do I have spread risk? My guess is no since it seems that that I would only have interest rate risk with respect to how the 10 yr tenor on treasury yield curve moves. How the swap curve moves would make no difference. Is that correct?

Thanks again, you're always helpful as usual!
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Old Sep 2, 2010, 11:42am   #6
 
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Re: basis risk vs spread risk

1. You have basis risk when you're long one type of instrument and short the other. If you're long both, it doesn't make sense to talk about basis.

2. Well, yes and no. Your outright position doesn't have any spread risk. However, you need to keep in mind how you fund yourself.
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Old Sep 2, 2010, 5:52pm   #7
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Re: basis risk vs spread risk

rookie77 started this thread what do you mean by funding yourself with respect to having an outright long position in 10 yr Treasuries?
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