10 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 ...
Helin's user avatar
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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 ...
Helin's user avatar
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9 votes
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Is repo-ing out a bond the same as shorting the bond?

Repoing out a bond is not shorting the bond. Repoing out is essentially collateralized borrowing. One is selling the bond and agreeing to buy the bond back at an agreed upon price. The difference ...
AlRacoon's user avatar
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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{...
Helin's user avatar
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7 votes
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Why is the 1 month OIS rate so stable?

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 ...
Attack68's user avatar
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7 votes
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Roll down Treasury curve (Coupon effects)

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 ...
Helin's user avatar
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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 ...
Helin's user avatar
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7 votes

Why 10-year versus 2-year spread?

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: ...
Helin's user avatar
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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 ...
Helin's user avatar
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6 votes
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YTM of "very-seasoned" bond issues

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 ...
Helin's user avatar
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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=...
JoshK's user avatar
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5 votes

Best method for interpolating yield curve? [Multiple questions]

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 ...
Helin's user avatar
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5 votes
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Intuition for why it's called "implied repo rate"?

In a reverse repo transaction, one sells an asset and agrees to buy it back at an agreed upon price. This is in effect a securitized borrowing of money. The difference between the price the asset is ...
AlRacoon's user avatar
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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 ...
rrg's user avatar
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4 votes

how to calculate daily risk free rate using 13 week treasury bill

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 ...
Mike O'Connor's user avatar
4 votes

What's the logic behind 3-10 UST yield inversion predicting recession?

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/...
Ezy's user avatar
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4 votes
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Computing T-Bill Yield across leap year boundary

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 ...
oronimbus's user avatar
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4 votes
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Why are negative option prices possible for callable US treasury bonds?

An actual option with an independent existence cannot have a negative price. But we are talking here about 'embedded options' that are part of another security (in this case a USTR bond) and cannot be ...
nbbo2's user avatar
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4 votes

Negative Carry when Yield Curve is Downward Sloping

Repo rates will be very close to short-term treasury rates so "the yield curve is downward sloping" and "bond yield minus repo rate is negative" mean very nearly the same thing. ...
Chris Taylor's user avatar
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4 votes
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US Treasury - IEF vs ZN Cumulated Return Comparison

I ran some quick simulations and the differences don't seem particularly drastic: The black line above is the cumulative total return (inclusive of dividends) of IEF. The yellow line is the so-called ...
Helin's user avatar
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4 votes
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Making Sense of Treasury Operations

The New York Fed runs a daily "multiple-price" auction using the FedTrade system which allows primary dealers to submit orders to sell shortlisted Treasury and agency securities at various ...
Sergei Rodionov's user avatar
4 votes
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How to determine the fair value of "off-the-run" U.S. Treasury securities

To be honest, this is a complex issue, but there are a few approaches taken in real life trading. The most simplistic approach is to mark the off-the-runs against the liquidly traded points on the ...
Helin's user avatar
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3 votes
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Question regarding coupons for government bonds

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 ...
Lliane's user avatar
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3 votes
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US Treasury foreign buying/selling data

The following link from Treasury gives you the data you need https://www.treasury.gov/resource-center/data-chart-center/tic/Pages/index.aspx
dm63's user avatar
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3 votes
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How do the following aspects lead to U.S. Repo shortfalls

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. ...
JoshK's user avatar
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3 votes
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Why do big financial groups use fx swaps to manage cash?

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 ...
AK88's user avatar
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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 ...
nbbo2's user avatar
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3 votes
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Swap Spread Positions with Duration Bias

Yes, generally you want it dv01 hedged not notional hedged to capture the spread changes in basis points.
Edward Watson's user avatar
3 votes
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Day-Count-Conventions T-bills, T-notes and T-bonds

I’m going to go on a limb and suggest that it was Stigum’s Money Market back in the late 70’s that formalised many of these conventions. This was the major reference at the time the bond and money ...
R110's user avatar
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3 votes
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Why are T-bills yielding lower than the reverse repo rate?

Yes, it is definitely because of market segmentation. On one hand there are many funds, central banks, etc. who can buy treasury bills and cannot engage in repos. On the other hand, entities which ...
Si Chen's user avatar
  • 421

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