The difference between the synthetic credit risk premium (the price of credit risk quoted in a credit default swap) and the cash market premium (the price of credit risk as traded in the cash market using asset swaps). In other words:

CDS-bond basis= CDS premium – asset swap spread

CDS-bond basis= CDS premium – cash spread of the reference bond

This basis exists in any market where cash and derivative forms of the same asset are traded. The derivative (say asset swap) represents the cash asset in underlying form. Fluctuations in the basis create arbitrage trading opportunities between the two forms of the asset. The basis is usually positive, but may occasionally be negative. It may arise from a set of factors: bond identity (deliverable bonds that rank pari passu with the cash asset), differences between the borrowing rate for a cash bond and the LIBOR, the premium required for bonds trading below LIBOR, difference in liquidity between the default swap and the cash bond, the counterparty risk the swap buyer is exposed to (unlike the cash bondholder), etc.

It is also known as a credit default basis.