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Looking to understand how to value a TRS on single 10y UST during the life of the trade. Here is an example of trade parameters.

  • 10mm constant notional
  • 1-year maturity
  • I am performance leg payer / funding leg receiver
  • Funding leg is a fixed rate at 0%
  • Dirty Bond Price at inception of trade is 99
  • Underlying bond is a 10y UST with a 1% coupon
  • Trade was executed same day as coupon payment so 1 day from now = 1 day of accrued interest

In one month from now:

  • Bond price is 98
  • Funding rates are now at 0.10%

Would this be correct MTM?

  • Accrued Interest = (10,000,000 * .01 * 30/365) = -8,333.33 pay to cpty
  • Performance = 10,000,000 * (98/100)-(99/100) = +100,000 due to me because I am performance leg payer (short the bond)
  • Performance Leg MTM = 100,000 - 8,333.33 = 91,666.67
  • Funding Leg MTM = 10,000,000 * (0.10% * 30/365) = -833.33 against me because I locked in at zero so I am worse off by the 10bps increase in the funding rate?

Total MTM = +91,666.67 - 833.33 = 90,833.33

Do you calculate the MTM of performance leg off the 10mm but the funding leg off the Funding notional (10,000,000 * 99/100)= 9.9mm?

Really appreciate any guidance here. Thank you!

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Act/Act for treasury note interest accruals

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