Dear all,since august 2007 the money market basis is signigicant and it was occasionally negative. I denote nYxsys the xM against yM basis swap spread for a nY swap, eg. 1Y1s3s.I know that the nY money market basis could be negative after the fixing has happened and then the yield curve changes shape such that in a 1Y basis swap one needs to make the basis swap fair. This is a somewhat technical reason.Another reason might be for a long dated contract that forward implied nY money market basis is negative.Are there any other reasons (economic/liquidity) for the basis to stay negative for some time period? Even on a fixing? I might also think of negative forward rates...Any comments are welcome.Best, Lapsi

The basis fwds have occasionally gone negative in various ccies, for various flow-related reasons. In some special cases, spot can go negative, but I don't really see that happening in any mainstream mkt since 2007. What cases are you specifically referring to?

Thanks for your reply. I just wanted to grasp the rationale behind some options on the spread I have seen in the market.These options obviously only pay out if the basis gets negative. Thus, I wonder if there are any issues that can aries to send the basis to negative values for some time...

Well, as soon as we start talking abt options, we're in the realms of basis fwds. Forwards can go negative for all sorts of reasons not related to anything fundamental.