1
$\begingroup$

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!

$\endgroup$
1
$\begingroup$

Act/Act for treasury note interest accruals

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.