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5 votes
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Measuring bond fair value (richness/cheapness) using basic regression models?

Just on nomenclature. You cannot establish fair value but you can use a regression for RV. OLS is perfectly legitimate when done in levels-as long as the series are cointegrated. Now we know that ...
NBF's user avatar
  • 1,078
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 ...
Helin's user avatar
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4 votes
Accepted

Bond Valuation and liquidity

In practice, this equation won't even hold for the vast majority of bonds in the US Treasury market, which is the most liquid government bond market. The chart below shows the spreads of US ...
Helin's user avatar
  • 11.8k
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 ...
dm63's user avatar
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1 vote

Bond RV YTM vs maturity or YTM vs duration

There are many different ways in which you can find RV between bonds. ASW levels is definitely one, another is CAS. Traders use carry+roll to try to assess RV between bonds, which takes into account ...
zarah's user avatar
  • 11
1 vote

Does it make sense to adjust a bond spread for price/coupon effects?

There is a difference between short term RV and long term RV. It is of course not useful to take a short term RV position with a relative value of 5bps if it will have a range of 4-6bps in the ...
Attack68's user avatar
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1 vote
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Two commodities which are normal distributed and perfectly correlated

This is a case of bivariate normal as there are two normal variables (as opposed to two variables driven by the same common random factor). The answer to your question is the conditional distribution ...
Magic is in the chain's user avatar
1 vote

What are the best relative value frameworks for Corporate Credit?

Not a complete answer, but some thoughts below - First you need to bifurcate the names into two categories - (1) Traded Credit, (2) Illiquid credit. For Traded credit underliers, fairly reliable ...
bhutes's user avatar
  • 1,006
1 vote
Accepted

Credit Spreads and Relative Value : floating vs fixed bond

My understanding is that you may have the following scenario: A nominal Italian bond paying a coupon, $c\%$, is equivalent to, A CCT-eu paying a floating coupon of Euribor 6M combined with receiving ...
Attack68's user avatar
  • 10.7k
1 vote

Treasury futures basis & calendar spd [multiple questions]

Implied repo is the return you get by shorting the futures and buying the underlying security (cheapest-to-deliver). In order for you to buy the security, you have to finance it in the repo market and ...
decaybeta's user avatar
  • 101

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