How to chart a 2s5s10s fly

Discussion in 'Financial Futures' started by marameo, Aug 13, 2019.

  1. marameo



    Originally I used to chart a 2s5s10s fly as in 2x05Y-02Y-10Y then I found out other weightings on a fixed income research paper (78%-100%-68% weighting on german bunds) where they compare it to a "3y3y - Spot 10yr Beta Adjusted Spread". Interestingly enough the 4:3:1 shatz bobl bund fly appears to trade similar to that.

    How did they go about it, BPV or PCA weighted?

    BWT: what is a "50-50 weighted" 2s5s10s butterfly?*0.78-TVC:DE10Y*0.68/

    Last edited: Aug 13, 2019
  2. bone

    bone ET Sponsor

    Learn this well:

    Under the “Trading Resources” section the “Current Treasury Spread Ratios” link will usually be updated every roll due to changes in the CTD cash instrument. Note that for some products like the 2 and 3 Year Notes - the charted spread expression differs from the executed ratio due to notional value differences with other futures contracts.
    Last edited: Aug 13, 2019
  3. marameo


    "Quantity ratios are calculated based on DV01 of respective cheapest-to–deliver securities"

    So, the butterfly 4:3:1 (as in the schatz bobl bund fly) is a DV01-neutral based ratio.

    If I want to achieve a PCA-neutral ratio I must run the PCA toolbox on schatz bobl bund respective cheapest-to–deliver securities.

    BTW: this software might make it easier to do the weighting:

  4. marameo


    The big takeaway is that no matter if I trade a PCA- or DV01-neutral strategy (butterfly, non-directional steepener/flattener) the position will be affected anyway by factors such as level, slope and curvature. One is supposed to factor that and accept the approximation.