VanillaCall
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How does one price the market value and estimate the fair value of a bond futures roll?
4 votes

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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How to quantify the coupon effect?
3 votes

Equations don't look intuitive. To quantify coupon effect for the same credit risk and maturity, discount the cash flows of a bond to get the price and then yield. Then discount the second set of cash ...

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Practical purpose of overnight repos
2 votes

You have positions that you need to finance via overnight repo. You secure financing by simultaneously entering into repo transaction with a bank to secure the cash to purchase the Treasury security, ...

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Importance of z-spread in CDS-Bond Basis trading
2 votes

Z-spread is a valuation tool. It's not traded but is used as a measure of relative value.

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Why did high yield corporate bond ETFs tank during the great recession
2 votes

During the recession, when rates fell towards zero, we're talking about Treasury yields. The yield of a high yield bond is comprised of the Treasury yield and credit spread so even though Treasury ...

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Basic CDS terminology
Accepted answer
2 votes

Yes, 42.520bp means its the spread of the CDS. The lower the CDS, the lower the premium of the sovereign entity and the less likely it will default. This is overly simplistic but gives you a sense ...

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How can we compute the daily drop in gross basis?
2 votes

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 ...

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Why rise in repo rates leads to increase in forward bond prices?
2 votes

Higher repo rates suggest higher costs to finance the bond position over some horizon period. This reduces the net carry you earn (coupon less financing cost). The forward price increases to adjust ...

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Bond strategy in rising rate environment
1 votes

Short term bonds are closely tied to the Fed funds rate. The Fed can only control the short-end of the curve, while the long-end is tied to economic growth, inflation, term premia. When Fed embarks ...

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Carry & roll - question regarding the repo transaction
1 votes

The transaction is basically just going into repo, borrowing cash and buying a long dated bond. Then using that bond and giving it to the repo desk as collateral. The repo is negative so you're being ...

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Which curve does the interest rate risk fall in?
1 votes

It should be the USD curve because it was issued in USD currency and hence the yields should be benchmarked off the US Treasury curve.

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DCF Valuation Models
1 votes

There's plenty of resources on the internet but I used to use during a banking internship: https://corporatefinanceinstitute.com/resources/templates/excel-modeling/dcf-model-template/

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How do Repo traders use OIS and Fed fund rates
1 votes

It's difficult to repo more than 3 months. Essentially a bank would be locking up their balance sheet over this time period which is difficult in this post crisis regulatory environment. So traders ...

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Treasury futures cost of carry and P&L
1 votes

You're buying a futures contract so there is no carry. It's basically a forward (assuming no optionality). Let's say you buy the TU futures contract and hold it until the last delivery date. At the ...

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Is there an inverse relationship between (future-spot) price and yield?
1 votes

The difference between futures and spot is related by the carry. Assuming a positive carry environment where the yield curve is upward sloping, then the spot price is less than the futures price. If ...

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How to compute the Carry + Roll-down of a bond with QuantLib?
1 votes

You have to understand two concepts: Carry: net income (coupon less financing) that you earn over some horizon. This is essentially Forward Yield - Spot Yield. I won't go into the details of ...

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How to download bloomberg intraday data efficiently with API
1 votes

You can do this in VBA or Python. Bloomberg has a SDK (software development kit) and provides examples for how to download data. Ask Bloomberg support, they will give you further guidance.

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What is the price of a bond that settles on its coupon date?
0 votes

Since the bond was purchased on 10/1 and settles on 10/3, the coupon belongs to the buyer of the bond. The reason why is because when someone buys the bond on 10/1, they receive the price + accrued ...

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T-bond of what maturity to use as risk-free rate when calculating excess return?
0 votes

I would use 3-month bills as a measure of the risk free rate.

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impact of bond futures conversion factor on calendar spread trading
0 votes

You must be referring to the US contract where the CTD is the 2/15/2036. The lower repo rate in the back contract should increase the net carry and thus lower the forward price. As a result, the bond ...

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Yield Curve Flattening Trade
0 votes

This is not a duration neutral trade then if you're assuming equal proceeds in on each leg. In that case, why do you need to know how much to allocate to each bond? If you short $100 million on one ...

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Calculation of Bond returns
Accepted answer
0 votes

Return is duration times change in spread. You have daily data so if the change in yield between two days is 20 basis points and the duration is 5 then the daily return is 100 basis points. One thing ...

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Carry and Rolldown of a Premium bond
0 votes

No, the 225p is your pure carry. This is the portion related to known cash flows. You know exactly what your coupon earned is and what your repo financing costs are. The pull to par effect is ...

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What's a reasonable way to extrapolate a bond curve?
0 votes

Use other corporate bond curves for the company in the same sector. If not, use curves with the same rating profile and make adjustments. For example, if you're pricing a Ford bond from 15 to 25 years,...

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