The pitch from Wall Street sales desks to clients goes something like this: Block out the horrors of the war in Ukraine, and focus on the trading opportunity it has created. Years, even decades could go by, one hedge-fund firm recalls being told, before another relative-value trade this attractive comes along.
For those comfortable with step one, the bet has indeed racked up quick gains. Known as a negative-basis trade, at its core it takes advantage of the near-unprecedented selloff in Russian debt since Vladimir Putin’s widely condemned invasion. It involves buying beaten down government or corporate bonds along with corresponding credit-default swaps, which insure the debtholder in the event of non-payment.
