How to calculate basis point in relation to tick movement?

[tommog]

Hi,

Please could someone explain to me how you work out how many ticks movement in bund bobl or schatz it would take to be equivilent to one basis point in the underlying.

For example Schatz is currently pricing a yield of "x", after a 10 tick move it is now pricing in a yield of "y".

I understand the number of ticks equal to a basis point move varies but have no understanding of why this changes or how it is calculated.

Many thanks

Tom

 

[Martinghoul]

The calculation is easy to perform in Excel. Basically, fwd price of the CTD bond = futures price * conversion factor. Once you have the fwd price of the CTD out of the delivery date, you can use the Excel YIELD function to calculate the fwd yield. Given two CTD yields that correspond to two different futures prices, you can establish the relationship between the futures ticks and the yield basis points (assume fwd yield moves more or less in line with spot yield, which is gonna be the case more often than not). It's a useful exercise to perform.

There's a Eurex doc out there that I might be able to locate that talks about this in somewhat more detail, if you like.

 

[Rhody Trader]

You're venturing into the dark realm of "duration" and "convexity".

Duration determines how price and yield relate at current price. Convexity determines how duration changes.

 

[tommog]

thanks guys, i'll have a look on the Eurex website, see if i can find that info

 

[Martinghoul]

This is it and it's pretty detailed.

 

[tommog]

cheers Martin