Answer: excess of the company's bond yield over the market reference rate.

A basis trade strategy is based on the difference between a company's CDS spread and the excess of the company's bond yield over the market reference rate (i.e., the bond's credit spread). This difference is called the CDS-bond basis. When this basis is positive or negative, it creates arbitrage opportunities between the CDS market and the bond market.

Author: LeetQuiz Editorial Team