In March 2007, the spread between the interest rate component on a dollar/Korean won cross-currency swap (CCS) and a vanilla domestic interest rate swap (IRS) was just 20-40 basis points. In mid-April 2008, after widening to as much as 500bp in November, the spread remains huge, at around 400bp. Experts say the development is indicative of a liquidity crisis in the South Korean market. At the same time, it presents an arbitrage opportunity for investors.
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| AsiaRisk - Korea Basis Arb May 2008.pdf | 96.14 KB |
