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Credit Market Arbitrage and Regulatory Leverage

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Abstract

In a companion post, we examined the recent trends in arbitraged-based measures of liquidity in the cash bond and credit default swap (CDS) markets. In this post, we turn to the mechanics of the CDS-bond arbitrage trade and explore how the costs and profitability of such trades might be affected by the finalization of the supplementary leverage ratio (SLR) rule in September 2014.

Suggested Citation

  • Nina Boyarchenko & Pooja Gupta & Nick Steele & Jacqueline Yen, 2017. "Credit Market Arbitrage and Regulatory Leverage," Liberty Street Economics 20170111, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87169
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    Keywords

    SLR; cost of capital;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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