From the CME website (following link) to trade 2/10 we need 3 2yr :1 10 yr (price ratio). http://www.cmegroup.com/trading/interest-rates/files/March-2011-ICS-Ratios.pdf Why is it? Isn't the current duration for 10 yr about 8 or 9? Shouldn't the ratio be 4:1 or 5:1?
All of the shorter duration futures hedge ratios tend to change more severely as the CTD changes. Eurex Schatz a great case in point.
Thanks for your answers. Where can I find the appropriate hedge ratios for later contracts for example the June 10yr vs June 2yr contract (or where I can find the CTD for these contracts? I can calculate the ratios)? I want to get into a 2/10 flattener trade but the March contracts are about to expire. I want to use the June futures so that I don't need to roll that often.
http://www.cmegroup.com/trading/interest-rates/intercommodity-spread.html They have not published June 2011 yet. Know anybody with a Bloomberg? Google "calculate interest rate DV01" it is a long, technical answer that doesn't lend itself well to a brief ET response. Martin Ghoul is a very smart guy in the rates - maybe he has the energy and motivation to respond in 500 words or less, because the topic deserves a detailed explanation.
Hahaha, thanks for kind words, bone... Cyrix, currently the CTDs for Jun contracts are: 2.5% Mar13 for the 2y and 3.5% Feb18. This gives me an approx ratio of 1610 2y contracts per 1000 10y contracts.
http://www.cmegroup.com/trading/interest-rates/yield-center.html http://www.cmegroup.com/trading/int...g-us-treasury-futures-conversion-factors.html http://www.cmegroup.com/trading/interest-rates/a-simple-treasury-duration-adjustment.html http://www.cmegroup.com/trading/interest-rates/files/On-The-Run-Futures-OTR-Yield-Curve-Spreads.pdf
Thanks, but these four links don't seem to contain Martin's "currently the CTDs for Jun contracts are: 2.5% Mar13 for the 2y and 3.5% Feb18". Maybe I need to go deeper into the other links on the website? Please advise.
Eurex and CBOT publish the current CTD's on their website, in addition to OffTR issue conversion factors.