I receive daily from Lehman brothers the differential in yield between the Ten years and Bund spread... about the correct hedge, bloomberg gives a hedge of 100 TY to 58 Bunds (10-6), I actually use 8 to 5... hope this helps. regards.
Are there any underlying reasons using 1.60 (8:5) instead of 1.67 (10:6) ? Is that mainly due to exchange rates? Thanks in advance!
I don't only look at the ratio that bloomberg gives, I also use an excel sheet that calculates the ratio using historical prices, the mix of both ends up with that 8-5 ratio, it doesn't changes much... the important thing is to have the trade in the correct direction... Regards
On a pure Interest rate perspective, the correct hedge is currently 69 bunds for 100 Tnotes. I took into account the current OAS duration on BBG (8.17 for Bund and 7.6 for the Tnote) and a EURUSD of 1.1965 However, to trade the spread I would take into account the historical volatility difference. The TY is much more volatile, so I would naturally use a ratio higher than 69/100 But it depends on your trade horizon.
This is interesting... Ive been trading a completely different ratio and was working fine, will chart ratio given when I get back to the office. Last time I checked on Bberg the ratio was completely different to what you say.... Hope I didn't completely screw up my inputting. Thanks a lot.
well, when I charted it, putting more weigh on the Bund than on the 10s was more stable, but in terms of interest rates it should be the opposite... happy holidays
Thanks... Obv direction is key... have found the bund more volatile than the note of late, but as I can't be trusted to input simple data into Bberg I may well be wrong on this too. Look forward to new chart on Wednesday! Happy Christmas (or festive season, whatever we're meant to call it now!)