Hi, Can somebody explain to me how yield curve arbitrage works, or post an URL where yield curve arbitrage is explained because I donât know exactly what it is. Thanx in advance
such questions are probably better asked at: http://www.wilmott.com There is a reference to YCA in the answers to the "What is Stat Arb" question in the Q&A forum: http://www.wilmott.com/messageview.cfm?catid=3&threadid=13135&FTVAR_MSGDBTABLE=
www.bondheads.com could help you could either be looking at price anomalies across the yield curve in the various futures (probably easier - options too if you wanna get complexxxx) eurodollar spread trades, NOB's (notes over bonds), TED's etc - look at the cbot web site for info on these. generally tend to be longer term in duration. i may also be totally off the mark here.
Here is a start! http://www.cbot.com/cbot/pub/page/0,3181,1413,00.html http://www.cbot.com/cbot/pub/cont_detail/0,3206,1413+12541,00.html
just like most trading strategies which are labled with the same misused term, yc "arbitrage" is just taking a bet on what the shape of the term structure of interest rates is going to do. by term structure i simply mean the differential between the rates of any set of maturities the bond/swap market. there is no true "free money" or "arbitrage", this strategy is just a form of expressing a view on the future rate differential between interest rates of different maturities....