18
votes
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What are some of the best textbooks on Fixed Income securities?
If I were to recommend one, it would be:
Bruce Tuckman's Fixed Income Securities. This is by far my absolute favorite. It is extremely well written and discusses complex concepts in very easy-to-...
- 11.4k
11
votes
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Bond ETF vs Bond Future for longer term holding
This is a surprisingly complicated question that encompasses many moving parts. Without knowing exactly what your objectives are, it's a bit difficult to offer concrete advice, so I'll provide some ...
- 11.4k
10
votes
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Impact on DV01 of cbot bond futures by changing coupon from 6% to 4%
It's complicated.
Assuming there is no CTD switches, then yes, the theoretical modified duration should be unchanged and the DV01 will be lower.
For simplicity, imagine that there is only one bond ...
- 11.4k
9
votes
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Determine the carry of a treasury bond futures contract?
Based on the your comments, I believe the issue lies with what you consider to be "carry." The reality is that there's no consensus. So let's take mini steps.
We'll start with what rates guys ...
- 11.4k
8
votes
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Modified duration of treasury futures tracking CTD?
Let's make a simplifying assumption that futures perfectly track their CTDs, then
$$ D_\text{mod, fut} = \frac{1}{f}\frac{df}{dy} = \frac{1}{F_\text{CTD} / \lambda_\text{CTD}} \cdot \frac{dF_\text{...
- 11.4k
7
votes
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Principal components in treasuries: spot vs futures
It is preferable to use constant maturity yields (ideally par yields) for running PCA analyses.
Using constant maturity par yields has several advantages:
By definition, the yields are of constant ...
- 11.4k
7
votes
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Calculating DV01 for Treasury Futures with CTD switch risk
You are trying to calculate the so-called "option-adjusted DV01" (OA DV01). The nice thing about OA DV01 is that it's a smooth function of yield shifts. I'm going to be lazy here and simply ...
- 11.4k
6
votes
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How to compute the yield on the Ultra-Bond Treasury Futures
I think you have a little misunderstanding about treasury futures. I would get this book: http://www.amazon.com/Treasury-Bond-Basis-Depth-Arbitrageurs/dp/0071456104?ie=UTF8&psc=1&redirect=...
- 2,588
5
votes
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Treasury futures basis & calendar spd [multiple questions]
Just adding to @dm63's answer:
A good way to identify CTD is by computing each deliverable's implied repo rate minus its actual repo rate. The deliverable with the highest implied-to-actual repo ...
- 11.4k
5
votes
How to calculate the daily carry on a bond future?
There are three sources of carry for bond futures -
Carry on the underlying (coupon accrual and yield roll-down) for which you just compute the carry on the cheapest-to-deliver as you suggest.
...
- 5,891
5
votes
Bond ETF vs Bond Future for longer term holding
The future will not maintain its duration as it approached maturity. The position will need to be rolled as it approaches maturity. The future will also be very sensitive to one or a series of ...
- 5,662
5
votes
Synthetic bonds with FX futures
Because exchahnge-traded FX futures have standard monthly dates, it's very unlkely that you can use FX futures to replicate exactly the bond's coupons. However you can use a series of OTC FX forwards ...
- 11.9k
4
votes
Principal components in treasuries: spot vs futures
This is an interesting exercise and would be compelled to see the results of your data gathering.
The principal purpose of treasury note (cash bond) analysis is for yields and the cross-asset class ...
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4
votes
What are some of the best textbooks on Fixed Income securities?
The Fixed-Income bible is definitely this one:
Damiano Brigo, Fabio Mercurio. Interest Rate Models - Theory and Practice
It is a 1,007-pager covering a large range of topics including:
Basic ...
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4
votes
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DV01 of bond future from DV01 of CTD
Suppose the CTD DV01 is 10cents.
If the CTD yield falls by 1bp then price goes up by 10cents.
The price of the future (if the net basis remains at 0) will increase by:
$$DV01.Future= (10 \times (1+...
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4
votes
How does one price the market value and estimate the fair value of a bond futures roll?
There are two equations that help me understand this:
1) Gross Basis = Spot CTD Price - Conversion Factor * Futures Price
If the Gross basis is positive, this means that it is a positive carry. In ...
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4
votes
Bond ETF vs Bond Future for longer term holding
The first two answers point out some interesting things but I think they are not making the most important point clearly:
The bond ETF is the equivalent of holding the entire basket of bonds bought ...
- 2,588
4
votes
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Can the carry of bond future be approximated by conventional yield and implied repo?
I don't think you can make a such a statement.
As a simplification let's assume that there is only one bond eligible for delivery into the futures (hence the CTD does not change, and the short's ...
- 330
4
votes
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Carry/slide on Treasury CTD basis position
“understand whether a long CTD basis position needs to incorporate slide/roll when computing basis net of carry”. I’d say (a) yes in order to compute net basis, you have to subtract all economic ...
- 16.5k
3
votes
Treasury futures basis & calendar spd [multiple questions]
To answer the first question, many people like to use scenario analysis. Check what is the CTD if rates move up or down 50bp for example. That will give you a sense of the likelihood. Sometimes the ...
- 16.5k
3
votes
Why repo goes negative for bonds trading special
Treasury bonds go "special" when many participants want to short them (playing for s higher yield). The person who shorts the bond needs to deliver it to the counterparty, so must borrow that exact ...
- 16.5k
3
votes
Why repo goes negative for bonds trading special
In repo/securities lending one person lends money (cash) and the other person lends securities. It is easier to understand if you think of the cash lender, who requires compensation for supplying the ...
- 10.9k
3
votes
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How does one price the market value and estimate the fair value of a bond futures roll?
The market price of the roll (aka calendar spread) is defined as
$$ (\text{front contract price} - \text{back contract price}) \times 32, $$
where the ${}\times32$ part converts the price into "32nds,"...
- 11.4k
3
votes
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How can I approximate the hedge ratio for Inter Commodity Treasury Spreads?
DV01 is defined as
$$ \text{DV01} = -\frac{dP}{dy}, $$
so technically you could run a regression of futures price changes vs (CTD) yield changes. The resulting DV01 is known as empirical DV01. In the ...
- 11.4k
3
votes
Bond ETF vs Bond Future for longer term holding
I don't have a formal answer, more of a hypothesis:
If the implied repo rate for the cheapest to deliver is < than the 3 month treasury bill. You are better off with the future. Specially adding ...
- 355
3
votes
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Implied repo rate calculation from Fabozzi
We are going to this operation using borrowed money (via repo).
How much capital do you need to do this? How many dollars for how many years? At first thought you need to raise $(P+A_b$) dollars (the ...
- 10.9k
3
votes
Accepted
Novice question about bond pricing
You need to be reading a more beginner-oriented tutorial on bond maths.
Several of the details in your question are irrelevant: the mention of dv01 (although it might be the next step after you figure ...
- 11.9k
3
votes
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Short Eurodollar futures front v back month
The difference is that they are completely different things.
Let's start with gold futures. Gold futures, if held to delivery, delivery spot gold -- say 100oz gold bars out of NY. So if you sell front ...
- 541
3
votes
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Ten Year Note Futures Implied Repo Rate calculation from CME Understanding Treasury Futures Document
Inclined to say that if CME uses the same methodology as Burghardt, then the IRR is wrong (assuming all the inputs are correct in that table, which they seem). Using Bloomberg this is what we get:
...
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3
votes
Why are long 2 year Treasury futures (ZT) trading at negative carry?
That's like saying, when the curve is upward sloping, why is anyone ever short ? Also, futures don't have carry, only roll down by definition.
Carry pnls for cash are realised if fwds are realised - ...
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