interest rate futures spread ratio

Discussion in 'Educational Resources' started by saminny, Sep 9, 2012.

  1. saminny


    I am confused on how to compute the spread ratio.

    For example, this is example I came across with my broker -

    Consider 2 contracts Bobl and Euribor.
    The DV01 of Bobl i 44.8 and Euribor is 25. To equalize DV01, we need 44.8/25=1.792 contracts of Euribor for every 1 contract of Bobl.
    However, tick sizes are different. 1 Bobl Tick is 10 Euros and similar Euribor tick is 25. So the ratio will be for 1 Bobl we need 1.79*(25/10) = 4.475 contracts of Euribor.

    I understand DV01 sensitivity to compute the hedge ratio. However, I don't understand how is he using tick sizes. If he related tick sizes to basis points, it would have made more sense to me.

    Does someone understand this?

  2. Tick sizes are irrelevant. Ratio of DV01s is the only thing that matters. Using the Dec Bobl contract, you will get to a ratio of roughly 2.25 (56.5 vs 25).