Timeline for Curve to curve hedging for treasury
Current License: CC BY-SA 3.0
7 events
| when toggle format | what | by | license | comment | |
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| Jun 3, 2017 at 1:53 | comment | added | Helin | Mechanically, nothing is different. Your long 10s/US "leg" is really has a net DV01 of $90 - 4\times 212=-758$. Your 5s/TY "leg" has a net DV01 of $47.6 - 6\times 83.8=-455$. So for each unit of the first leg, you need 1.66 units of the second leg. You can also use regression betas to improve the hedge ratio. These would immunize the trade against parallel shifts, but practically speaking, I don't know what's going on... If your objective is to bet that the 10y sector will richen against 5y and 15y sector, it's more direct to just do a butterfly (I could be misreading your symbol convention). | |
| Jun 3, 2017 at 1:35 | comment | added | A1122 | I'm not trading 5s10s, which would use the hedge ratio you provided. I don't think I'm explaining it correctly. Please excuse me and let me try again. Say that I am long 1 curve which is +1 10 year note - 4 ZB futures. Ok, this is the first curve. I don't like the curve risk associated with this, and I would like to hedge (short) another curve, say 5 year ZN. What ratio of 5 year ZN to 10 year ZB should I use? So I'm essentially creating a 4-legged spread, hedging 10 year ZB with 5 year ZN. | |
| Jun 3, 2017 at 1:33 | comment | added | Helin | It's just the ratio of the two DV01s. If 10-year DV01 is 81.2 & 5-year DV01 is 51.2, then for each 10-year contract, you need 81.2/51.2 = 1.59 of 5-year contracts. | |
| Jun 3, 2017 at 1:26 | comment | added | A1122 | if I'm long one 10 Year Zb curve, how many 5 Year Zn curve do I need to short to "curve hedge" 10 Year Zb? | |
| Jun 3, 2017 at 1:18 | comment | added | Helin | TBH, now I don't understand your question at all. If they're DV01 hedged, isn't it done? Can you clarify what your goal is? | |
| Jun 3, 2017 at 0:48 | comment | added | A1122 | Hi, thank you for your response.. I have a better picture now. I've added more details about my questions to make it clear that I'm asking about curve to curve hedging.. | |
| Jun 3, 2017 at 0:07 | history | answered | Helin | CC BY-SA 3.0 |