Trade Examples

Attached are recent examples of trade advisory ideas we sent to our clients.


USD : Playing Curve 2's5's curve versus Yield

  1. Buy CMS curve Vol  ( priced at just 30bp per annum annualized bp vol) and get into a steepener in 2’s 5’s 11bp BELOW SPOT
  2. Sell mid curve Payers Vol ( priced at a massive 90bp per annum annualised bp vol ) and get short a 6month payer onto 2y3y forward at 52bp ABOVE SPOT


To take advantage of yield curve bear steepening in USD given the relationship between rate and curve has such a high beta

Sell 352mio 6m mid curve Payer onto 2y3y struck at 2.57% ( ATMF +40bp)  in $100k final dv01


Buy 1bio 6m expiry single look USD 2’s 5’s CMS CAP struck ATMF at 58bp (at the money Spot -11bp)  in $100k final Dv01 For zero Cost

Rolls after 3m to be worth $515,000, at expiry to be worth $1,100,000

So $100k of final DV01 of CMS curve versus just $100k of yield ( see beta analysis below )

Sell the 6m onto 2y3y Payer struck at 2.60% ( ATMF +40bp ) BLUE LINE below right hand scale in $100k final dv01

Buy a 6m expiry single look USD 2’s 5’s CMS CAP struck ATMF at 57bp PURPLE LINE below left hand scale in $100k final Dv01


This works because of the high ratio of mid curve vol to CMS curve vol  


Looking at simple regressions a 180bp rise in USD 2y3y is associated normally with a 90bp steepening of 2’s 5’s

The fact we have struck the CMS cap ATMS-11bp and the mid curve ATMF+40bp should offer enough leeway in terms of protection 


Rolling beta of 2y3y USD on 2’s 5’s curve, has been pretty stable for last 5-6 yrs with a peak at 0.7 during the mini April 2012 sell off 

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