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3

There are some slight inaccuracies in using term basis. You probably meant strategies which profit from carry/futures roll. There are a lot of variations of carry/roll strategies on different markets. I can point you to: 1/ FX carry - can be easily traded using futures 2/ Term structure/carry in commodities 3/ Term structure/carry in bond futures 4/ Term ...


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Convention for most currencies is flat compounding. This includes the most liquid G4 basis swaps: EUR 3m vs 6m, 3m vs 12m, 1m vs 3m USD 1m vs 3m, 3m vs 6m GBP 3m vs 6m, 1m vs 3m JPY 3m vs 6m, 1m vs 6m, 1m vs 3m Typically the spread is quoted in terms of the leg with the shorter tenor. Two notable exceptions are EONIA v 3m and the (relatively new) SOFR ...


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The Treasury Bond Basis: An in-Depth Analysis for Hedgers, Speculators, and Arbitrageurs by Galen Burghardt and Terry Belton is a good book on Treasury Futures.


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Reasons why the net basis might trade negative from time to time : 1) if a credit crisis occurs, investors do not have the resources to invest in the basis. For example , banks are unwilling or unable to provide repo financing. Or, investors do not have the cash required for the haircut on the repo financing. Hence the basis traded negative during the ...


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Say a US investor with 1mm USD wants to buy a 10Y Volkswagen bond in EUR priced at 100 EUR with a 5% coupon. First that investor needs to acquire EUR for purchase without exposing themselves to FX risk. To do this they execute a cross-currency swap. The investor will pay 1mm USD and receive say 1.1mm EUR with the agreed cashflows: he will receive USD 3M ...


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The change in the gross basis would simply be due to carry. You know the spot price of the bond. If you lock in term repo to the forward date, you will know your forward price. The difference between forward and spot price is your carry. Convert the carry to a daily value and this reflects the daily drop in gross basis. Put differently, if we assume last ...


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The expected change of basis over time will be equal to the change of $P_{bond}$ over time; this is because he change of $P_{futures}$ (as market estimate of delivery price) is expected to be zero (it is not subject to drift, all else being equal). For determining the change of $P_{bond}$, you would solve the first formula for $P_{bond}$, and besides ...


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This would be specified in the ISDA or term sheet. There are four alternative methods: No compounding: Meaning neither the rate nor the spread get compounded. Compounding: Meaning both the spread and the libor rate get compounded. Spread exclusive compounding:Meaning the libor get compounded but the spread does not. This was not covered by ISDA 2006 but ...


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