7

Let's make a simplifying assumption that futures perfectly track their CTDs, then $$ D_\text{mod, fut} = \frac{1}{f}\frac{df}{dy} = \frac{1}{F_\text{CTD} / \lambda_\text{CTD}} \cdot \frac{dF_\text{CTD} / dy}{\lambda_\text{CTD}} = \frac{1}{F_\text{CTD}}\frac{dF_\text{CTD}}{dy}, $$ where $f$ is the futures price, $F_\text{CTD}$ is the CTD's forward price, and ...


7

To calculate rolldown that accounts for the coupon effect requires a fitted curve. Assuming such a curve is available, then the following procedure is usually followed: First, calculate the z-spread of the bond in question relative to the fitted curve: $$ P = \sum_{i=1}^n c_i \cdot d(t_i) \cdot e^{-s t_i}, $$ where $P$ is the current quoted dirty price (...


7

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 consider as "pure carry." In this most classical and fairly strict definition, carry is the deterministic component of expected returns – you know exactly what it is ...


7

The short answer is that using 2y/10y is not a requirement and many other combinations are commonly used (e.g., 3m/10y, 1y/10y, fed funds/10y). According to a note published by the New York Fed: With regard to the short-term rate, earlier research suggests that the three-month Treasury rate, when used in conjunction with the ten-year Treasury rate, ...


6

There is a liquidity premium between on-the-run treasury issues and off-the-run issues with similar characteristics. This is why when building a yield curve, typically on-the-run issues are used to compute this curve as a representation of the risk-free rate. Depends on what you're using the curve for. In practice, it is far more prevalent to use only OFF-...


6

The OIS rate is the market rate that is most dependent on the Central Bank Deposit Rate (i use that as a broad term since it is called something slightly different across currencies but principle is the same). The transmission mechanism (that is of central concern to Central Banks) therefore impacts this rate more than any other with high correlation. OIS ...


6

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 maturity, so your results won't be distorted by "rolls." When you use either rolling futures yields or on-the-run bond yields, there could be many breaks in the ...


5

Typically, the yield curve used for performing relative value analysis should be built from off-the-run bonds. Different vendors select different bonds, but starting with all outstanding Treasury issues, you'd usually remove the following: Treasury bills: Because of market segmentation concerns, bills are usually excluded, while short-term coupon bonds are ...


4

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 relative valuation where both provide signals. Alternatively, futures provide a technical analysis picture supplementary to yield dynamics. Personally I would ...


4

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=true&ref_=oh_aui_search_detailpage It is the absolute best guide to this product. A few important things to understand: Every treasury future has ...


4

When the market enters a risk-off period the investors proceed to a rotation between more risk assets (commodities, equities etc...) to the less risky ones. At this point there is just a lot of supply/demand imbalance on the bonds which drives the yield of the 10y down When investors proceed to "flight to quality" they want to protect themselves against ...


3

1) Yes, the coupon is usually set so that the bond would be issued at par because that's what mainstream investors usually prefer (current yield close to interest rates). There are also issues of zero coupon which eliminate reinvestment risk and are preferred by other types of investors (insurers for instance). In the US, you can strip the coupons from the ...


3

The following link from Treasury gives you the data you need https://www.treasury.gov/resource-center/data-chart-center/tic/Pages/index.aspx


3

I'll add a little more color. This week corporations had to pay about $35 billion in corporate tax. When corporations do this they withdraw those funds from the short-term money markets. Essentially the corporations were using this tax payment money to lend short term. They would lend this money to money market funds - who in turn would lend this money ...


3

Due to the leap year 366 days need to be used here to match UST conventions (which is ACT/ACT). In this case it doesn't matter whether your interest period extends to only 1 day after the 29th of February or, e.g., 200. In fact if you look at the daycount description of the bill it says: "the day count basis for price and yield calculations is 365 ...


3

I can give you one example from EM banking sector where FX swap played a critical role in day to day operations. This EM country's Central Bank used follow fixed rate currency regime and used to keep the USD FX rate within certain bands. In the first half of the 2010's, major political events and drastic changes in commodities prices, specifically in oil ...


3

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 dirty price of the bonds) for $d_1/360$ years, but actually you need less because you will receive $I_c$ in cash when there are $d_2$ days left to go and can ...


2

user233051 notes that ^IRX is indeed the official discount rate of the US Treasury. So to answer his question we need to exactly understand how the Treasury computes the discount rate. My answer is based on www.treasury.gov pages here, here and here. The official way of calculating the discount rate $d$ is $d = \frac{100-P}{100}\frac{360}{n}$ where $P$ is ...


2

If you want to do it super precisely, the convention for building fixed-income total return index is as follows: You assume at the end of the month, you buy the instrument (in this case a 3-month T-bill). You hold this exact T-bill over the course of the next month and mark it to market daily and calculate the daily returns ($P_t / P_{t-1} - 1$, which is ...


2

It's confusing because US Treasury securities (USTs) don't actually have to settle $T+1$. Depositories, or non-depositories with an account at a clearing bank, can settle Treasuries on a gross delivery-versus-payment basis over the Fedwire Securities Service in real-time (i.e., $T+0$), which is what is done for same-day start bilateral repos backed by USTs. ...


2

If you think about carry as a cushion against a change in the forward yield then carry (in basis points) for the underlying bond equals with (coupon income of the bond - repo rate) / forward DV01 of the bond. (Carry could be also calculated as the forward yield - spot yield) That is how much the forward yield can rise before you start loosing money on the ...


2

If the business cycle is mature then the central bank (usually) looks to raise the policy rate to keep inflation pressure under wraps. This can necessitate raising policy rates to the point at which the economy slows by so much that it causes recession (defined as two quarters of negative growth). Market expectations about slowing growth and an eventually ...


2

Welcome to fixed income data problems padawan! I mean, if you really wanted to, you can convert it. But the problem is the that a lot of these prices are lagged by varying measures with inconsistent updates and inaccurate from market convention prices outside of a few sources. Only way I've obtained what you are asking for is asking my friend at a bank to ...


2

The reason for subtracting the tbill rate is to incorporate the general level of short term rates in the analysis (rates were considerably higher in 2005 than now, for ex). Your idea of lagging the rate by one week is a good one IMO. Further refinements (eg trying to simulate buying and selling of tbills on a weekly basis ) are completely unnecessary and ...


2

The corporate tax payments to the Treasury result in less reserves in the banking system. Similarly , when there is Treasury issuance, reserves leave the banking system. Banks need a certain amount of reserves to function normally and to have enough for a rainy day (eg if there were unexpected withdrawals from depositors). Earlier this week , banks found ...


1

In a standard monocurve world, the interest rate curve is increasing with decreasing slope. Something like this. This comes, in very basical environment, as the exponetial cumulative sum of spots rates. Let me call the 10y-2y difference spread further on. So why 10y-2y (in general)? This is a $long-short$ period difference. During a recessions, central ...


1

Ok so first I would ask you to take a look at this: Why is the 1 month OIS rate so stable? It seems to me that in calculating excess returns you are effectively trying to derive information, or I suppose strategies, on the underlying funds. Since all funds will be using the same risk-free rate as their weekly benchmark I cannot really envisage a scenario ...


1

The conversion factor isn't 1.0 ever for these. For example, today TYZ8 settled at 118-25. The conversion factors range from .83 to about .78. So the equivalent for the cheapest bond is basically 99-05 . That gives a 3.01 yield. I can give you some screen shots from Bloomberg later if that would be helpful. Here's the deliverables for the TYZ8: You ...


1

It's because the Bill rate is observed from an active marketplace with billions of dollars of transactions, whereas Libor is the result of a daily poll of large banks, who tend to move the rate gradually and smoothly over time.


1

Since each bank is able to set their own rates and terms for savings accounts, this is a difficult question. 4 week Treasury Bills only started trading in July 2001. Source: https://www.treasurydirect.gov/indiv/research/history/histtime/histtime_bills.htm You might want to look at the Federal Funds Yield which is the overnight rate that banks charge each ...


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