Since Lehman Brothers collapsed in September, the price of corporate bonds has dropped substantially while the price of credit default swaps has risen, but not nearly as dramatically. The discrepancy, known as negative basis, provides an opportunity for investors. "The idea of buying a bond and hedging with CDS is something that institutions do but which is tough for private-banking clients to do because most of them don't have access to the CDS market," said Olivier Destandau of Deutsche Bank. "We've repackaged negative basis from the corporate-bond market into a product that can be distributed to investors who typically don't have access to this opportunity."
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