The differential or spread that exists between credit derivatives (such as credit default swaps or CDSs) and their underlying cash bonds. This differential is also referred to as the basis:

Bond CDS gap = CDS price – cash bond price

Bond CDS gap = basis

If CDS price is higher than cash bond price, this means that CDSs are trading above cash bonds, and as such buying debt protection is costlier than usual. A positive basis consists of a short position in the cash bond altogether with short CDS protection (selling protection).

A negative gap results from a long position in the bond and a long credit protection position (buying protection).