Cash & Loans Advice Blog

How to make your loan more effective

would be better buyers of the bond and buyers of protection to maturity to lock in the positive carry.

Factors that widen the basis (positive basis):

• Strong demand from protection buyers such as banks or hedge funds
• Bonds can usually be funded in the repo market at or around Libor.
• If the bond becomes special the investor holds a repo market option that makes the bond more attractive than the CDS and tends to widen the basis (short positions in bonds cannot be locked in for years because of a nonexisting repo market).
• Deteriorating credit quality and increasing spreads/basis volatility or equity volatility (CDS = high beta instrument).
• Assets trading below par, that is an investor who pays $80 for $100 face value has less credit exposure than a protection seller at par. Therefore, the protection seller would demand a higher premium (spread) than the bond.
• Convertible bond issuance may lead to hedging credit risk to unlock “cheap” equity volatility.
• The cheapest to deliver option is a structural factor, which tends to widen the basis (protection buyer is able to deliver any qualifying loan/bond).

The default basis can also be viewed as a risk indicator. In general, the sale of default protection should be more attractive than purchasing a bond when the basis is high relative to the equity volatility of the firm and vice versa.

Techniques to boost internet credit options

Seven decisions can help to drive sales online:

Generate participation, ownership and commitment within the whole company and among senior managers in particular, so that a co-ordinated, cross-functional approach is taken that increases value for the customer and reduces costs for the business.

Ensure that the online sales strategy is all-embracing, enhancing existing activities and learning from past experience.

Simplify the customer’s experience so that the sales process is streamlined, with barriers to purchasing removed.

Ensure that the website is sticky and compelling. You want customers to remain at the site when they arrive, and to return frequently.

Focus on flexibility and efficient personalisation so customers are able to buy exactly what they want, how they want it. Avoid duplication and past mistakes; for example, avoid a complicated, high-cost solution when an effective, low-cost alternative is available.

Prepare internally for the changes that an internet sales strategy will deliver so that the company avoids investing too much, too little, too late or too soon.