is that even the same trade.. We are looking to trade the bank lending rate against the gov lending rate..
from this video.. i'm seeing the treasure bill exposure leg being derived from ZT or ZF... take a look .. http://www.youtube.com/watch?v=mhTXNLwcpOk
All these are different, in a variety of ways... Which is why you're trading these as spreads, with their own specific dynamics. It's a space with a lot of moving parts, which makes it more challenging, but also periodically offers opportunities.
Yes, correct... Originally, TED spread was defined using T-bill rates. Nowadays, people normally look at longer-dated treasuries, rather than t-bills.
why and when this change happened? how much longer dated (1yr or 3yr?) people look at now to define TED spread? Thanks Marty
It's not really an official change... Terminology sorta shifted over time, really. Mainly because liquidity is now mostly available in other places and there's a lot of mkt participants looking at spreads in other ways. As a result, people generally don't talk about TED spread as much these days and talk instead about "spreads" or "invoice spreads". I am familiar with the document.
I was actually not posting it for you.. for others following.. But no worries. In the documentation here.. http://www.cmegroup.com/trading/int...lar_Futures_Interest_Rate_Building_Blocks.pdf bottom of page 18.. "Quick and Dirty" TED spread.. Buying 1 CBOT T-Note future "ZT" and selling a Eurodollar pack Is that good. what is lost in the "quick and dirty" of it.. And the normalizing or weighing the spread eludes me... normalizing it to what.. the same notional, and Basis point value?
It's "quick and dirty" because it's not exact. Specifically, it's talking about using a Eurodollar "pack" for simplicity, rather than a proper strip of contracts. You weigh the spread in such a way that when a parallel shift of the curve(s) occurs, you don't incur any PNL. You do that by using the number of contracts, such that the BPVs of the two sides of the trade are exactly equal.