Questions tagged [basis]

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Basis Trade- Long/Short vs Short/Long

I understand the long-short basis trade quite well, especially in the context of crypto. Say BTC is worth \$100. For example, buy \$100 of BTC, and short \$100 of a perpetual futures BTC-USD contract. ...
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43 views

Forward Price from Spot Price QuantLib

Is there a way to compute the forward price of a bond from its spot price in QuantLib? Based on the documentation and on examples online, it seems that it is only meant to be used with a yield term ...
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106 views

Why exchange basis exist in swaps

For example, swaps traded in CME versus LCH are quoted with slight difference? how do we decide the theoretical boundary of the basis ? what factors need to be consider? I think the principal to ...
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1answer
204 views

Why has cross currency basis become higher since the 2008 crisis?

The impact of cross currency basis on FX forward pricing has become more noticeable since 2008, diverging significantly from the interest rate differential, what are the fundamentals behind this ...
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1answer
76 views

Is there any data sources for historical arbitrage basis (e.g. on-the-run/off-the-run basis)?

I hope to get data going back as far as possible. Someone must have computed these things, but not sure if anyone has shared these data online? If not, if you know how I can get the data for the ...
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97 views

Bootstrapping EURIBOR curve

I’m trying to bootstrap a 1m, 3m and 6m euribor curve. The data I’m using is 3m Euribor swaps, 1m/3m basis spreads and 3m/6m basis spreads. I’ve successfully used quantlib to bootstrap a 3m curve but ...
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148 views

Why were Laguerre polynomials a good choice of basis functions for American Monte Carlo?

I am implementing LSMC to price American options based on a custom model. I now need to make a choice of basis functions, so I am looking for the theoretical justification for using Laguerre ...
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1answer
145 views

Why was CDS-bond basis close to zero before the financial crisis?

For instance, see the evidence here: This paper claims that this arises from the fact that cash bond and CDS have different margins, and thus it is cheaper (funding wise) to hold CDS positions. ...
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1answer
202 views

FX Hedging costs when using 3m FX Fowards vs XCCY swaps for an IG Bond

Suppose I want to hedge the FX exposure of an USD Corp Bond(held to maturity) to GBP and I can choose between rolling 3m FX Forwards and XCCY swaps. How can I estimate the difference in the hedging ...
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50 views

Carry and expected return of a short bond basis position

If we assume net basis is 0, the bond trades above par, the bond’s yield > than the term repo rate, what is the expected pnl of being Short the ctd vs long futures? I would have thought the ...
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1answer
131 views

Implied funding/repo rates from Credit Default Swaps

One of the differences between a CDS and a bond is the funded vs unfounded nature of the two. Given that is the case, at least some portion of the CDS-Bond basis should be driven by an implied repo/...
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110 views

Cross Currency Swap Bids and Offers?

Could someone please explain why certain Cross currency pairs like EURUSD or GBPUSD show higher bids then offers in Bloomberg? e.g for a 5y GBP/USD Xccy Swap bids could be at -5 bps and the offer at -...
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1answer
440 views

DV01 on LIBOR vs. SOFR basis Swaps

If I had entered into a USD 10mn pay SOFR, receive 3M LIBOR swap with a 5yr maturity, I would have had a positive NPV of about 80k by the beginning of March due to the massive drop in SOFR (1.55 to 0....
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1answer
103 views

Negative Carry when Yield Curve is Downward Sloping

I am currently reading "The Treasury Bond Basis", and have a question regarding negative carry. The book states that the carry of a vanilla treasury bond will be negative when the yield ...
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1answer
115 views

How to construct a GBP FVA curve from a USD FVA curve

Our business funds itself in 2 currencies, USD and ZAR. As a consequence we have a USD funding curve. I need to price a GBPZAR cross-currency swap (XIRS) against a counterparty with which we have no ...
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1answer
160 views

Duration of a futures contract

I have tried to find an answer to this question but have come up with nothing. So, it is my understanding that to find the duration of a futures contract (assuming no switch risk), all you need to do ...
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59 views

Futures Carry for Index Spread Trade

This question is about a leveraged trade involving index futures. Let's use an example of buying two contracts YM futures and selling three contracts RTY futures. CME will give the trade a margin ...
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44 views

yield versus duration in cash-and-carry (basis) trade

I am trying to run a cash-and-carry (basis) trade. I'm having trouble understanding how to weigh the tradeoffs between yield, annualized yield and duration/time to expiry. Suppose we are in a ...
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94 views

Different FEDFUND INDEX use for Basis swap with LIBOR and SOFR

I am trying to understand the compounding in Basis Swap. I had 2 type of basis swap trade as below USD SOFR FF BASIS LCH – compounded FF (USD-Federal Funds-H.15-OIS-COMPOUND) USD LIBOR 3M FF 3M BASIS ...
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1answer
419 views

why is ADBSC currency positive?

Hi guys I am new to cross currency. Could anyone explain why ADBSC <curncy> (Australian Dollar 3 month cross currency basis) in Bloomberg is always ...
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2answers
341 views

Cross Currency Swap - is par basis supposed to change while OIS discounting rate is changing?

Assume a USDJPY cross currency basis swap priced using usd ois & usdjpy basis curve as discounting, and usd libor & jpy libor as projection curve. Now if usd ois is moving in the market while ...
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2answers
874 views

treasury bond cash future net basis

In the cash bond and future basis trade, the net basis is like the option (quality option and time option) premium, right? So, it should be positive. Sometimes I see it went to negative, so does this ...
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1answer
456 views

Cross Currency swap - Bond Yields arbitrage

Could somebody explain me step-by-step how can I compute the cross-currency yield of a bond bought by a foreign investor and x-ccy swapped back into his domestic currency? I basically would like to ...
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2answers
485 views

Reference on Futures basis trading strategy

I have heard that it is possible to trade on the futures basis. In my understanding, the futures basis is essentially the difference between the futures price and the underlying asset (also referred ...
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3answers
484 views

How can we compute the daily drop in gross basis?

Background The implied repo rate (IRR) is essentially the carry for going long basis (buying the deliverable bond and selling the futures contract). For this reason, it rises in value day-by-day as ...
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1answer
1k views

Why z-spread differs from CDS spread in 1 period example

Suppose we have a 5% (paid-annually) coupon bond with 1-year to maturity. We also have a 1-year CDS with a single payment paid annually (running spread with zero upfront). Assume that the underlying ...
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2answers
2k views

bootstrapping a basis curve to get a forward basis curve

suppose i have a trade whose payoff underlying is 3m libor minus 1m libor. the standard approach is to bootstrap seperately 2 projection curves: a) a 3m projection curve, b) a 1m proj curve. however, ...
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2answers
1k views

tenor basis swap spreads and compounding

Let's say I have a 3mv6m tenor basis swap that is quoted at a spread of x bp (and it is a spread on the 3m leg while the 6m leg is the flat leg). Nowadays, I think the convention in most currencies is ...
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1answer
3k views

Intuition behind the tenor basis spread in basis swaps

Reading myself into basis swaps, I was wondering a couple of things. Say, one enters into a 1y - basis swap where party A agrees to pay 1M-LIBOR each month and party B agrees to pay 3M-LIBOR every ...
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2answers
3k views

Basis risk, spreads and discounting

There is a lot of information to be read on basis risk, spreads and discounting. After reading some information, I have an idea about what basis risk is about and why this type of risks should be ...
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1answer
6k views

Convert 3M rates to 6M rates using Basis Swaps (3M vs 6M)

How can I convert a 6M Libor rate e.g. 1Y Tenor to a 3M Libor rate using a basis swap 3M vs. 6M? I wanted to know the math and also an example would be great. Update: Example: ...
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2answers
710 views

FX risk of basis swap in foreign currencies

As an US investor, if I enter a basis swap in a foreign currency (say Euribor-Eonia basis in EUR), and book my trade using USD. I must have some sort of FX risk, right? How do I hedge such risk? I'd ...
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1answer
491 views

Basis swap pricing dynamics

The existence of basis spreads leads to that e.g. a 6M forward rate has a different price than two after each other following 3M forward rates. This due to that the 6M forward rate has a higher credit ...
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2answers
8k views

Tenor basis spreads 1mv3m vs 3mv6m

I was reading this article on Tenor basis spreads(http://www.garp.org/media/1160302/052913_tenorbasisspread.pdf). Why is the tenor basis spread for NUSD for 1mv3m negative and NUSD for 3Mv6m positive?...