I was asked in an interview to get an exposure to 5Y5Y forward rate using bonds alone. Essentially it is short 5Y bond and long 10Y bond, and I needed to compute the relative weights. Regarding risk:
- The 5Y bond does not have risk on 5Y-10Y
- The 10Y bond is assumed to have equal risk on 5Y and 10Y.
How to compute the relative weights using this information? I am unclear on the mathematics involved in this sort of question.