Treasury swap spread trade

P1 – Bing Iron Condor | Wasatch Trading

Any interest rate swap will make or lose money as rates go up or down. But what if an investor does not have an opinion on whether rates will go up or down? Perhaps, they think that the credit-worthiness of the financial industry will change relative to sovereign debt? In this case, they can transact a Spreadover. They would be well served to enter into a Spreadover trade.

If they think 10 year Interest Rate Swap rates will go up by more or go up faster than the yield on a 10 year Government Bond, then they should pay the fixed rate on a 10 year swap and buy the 10 year Government Bond.

If they think 10 year Interest Rate Swap rates will go down more or go up slower than 10 year Government Bond yields, then they should receive on a 10 year swap and sell the 10 year Government Bond. This strategy highlights a very important feature of Spreadover trading.

United States Treasury Swap Spreads

These trading strategies rely on relative moves between two markets. The price of a Spreadover trade is the yield spread between the two instruments, expressed in basis points.

Spreadovers: US Treasury Spreads in the Swaps Data |

The degree of convexity on each instrument may be very slightly different, therefore the position may need to be rebalanced following particularly large market moves. We always talk in terms of the bond leg.

The USD Swaps market is thankfully a simple beast. As such, the particular form of Spreadovers in US markets that trade the most are also one of the most simple. We can also use SDRView Pro to analyse the tenors that have been trading in notional terms: However, we can infer the Bloomberg market share by looking at trades reported to their BSDR. We can also use SDRView Res to look at the daily history in DV01 terms for BSEF. What we see is:.

Money A2Z

As I said, the USD Swaps market trades a very simple version of Spreadovers also known as US Dollar Swap Spreads in CFTC parlance. Keep an eye out for a follow-up blog highlighting some of the other asset swap structures that are traded across other markets.

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Mechanics and Definitions of Spreadovers Swap Spreads. Chris Barnes May 11, No comments. Direction We always talk in terms of the bond leg. Spreadovers in the data The USD Swaps market is thankfully a simple beast.

This did not coincide with the same peak day for overall risk traded this year which was 5th Feb. Wednesday and Thursday of last week saw unusually large volumes, but this was in-line with the spike in activity we saw in Swaps markets overall as a result of the extreme price volatility in underlying bond markets.

If anything, it is surprising that Spreadover volumes were not higher. What we see is: Print Email LinkedIn Twitter Google. April Review — Lower Volumes.

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