Yield curve strategy Flashcards
Investor expected FI portfolio return
coupon income
+ rolldown return
+ Delta price due to view of benchmark yields
+ Delta price due to view of yield spread
+ Delta price due to view of currency value changes
butterfly spread
+ common measure of yield curve curvatuew
+ = -short-term yield + 2x (mid-term yield) - long-term yield
if spread:
+ butterfly spread >0 => mid-term yield > 2 dau => humped
+ butterfly spread <0 => mid-term yield < 2 dau => saucer
bullet portfolio
the portfolio concentrated in single intermediate maturity
barbell
combining short and long maturities
cash-based static yield curve strategies
include strategies:
+ buy and hold: extend portfolio duration longer than benchmark
+ rolling down the yield curve
+ repo carry trade: user leverage, borrow the lower rate to invest in higher rats
derivative-based static yield curve
include following strategies:
+ Long future potision: increase duration
+ receive-fixed swap: to increase the portfolio duration
BPV
basic point value: = BPVctd/CFctd
Swap BPV
Swap BPV = ModDu swap x Swap notional
increase duration
+ cash bond: over-weight longer date bond
+ Swap: receive fix
+ Future: Long contract
decrease duration
+ Cash bond: sell bond/overweight shorter-dated bond
+ Swap: Pay fixed
+ Future: short contracts
bull steepener
short term fall more than long term
bear steepener
long term rise more than short term
bear flatterner
Short term raise more than long term
bull flatterner
short term fall less then long term
butterfly strategy
+ Long bullet short babell or;
+ Short bullet long barbell
