Swapnote futures

arabianights

arabianights

Legendary member
Messages
6,721
Likes
1,380
I'm just having a fiddle now with one lots - does anyone here trade these properly?

Update: a profit in six different markets today, three of them one tick - did this for the hell of it :D
 
Last edited:
arabianights said:
I'm just having a fiddle now with one lots - does anyone here trade these properly?

Update: a profit in six different markets today, three of them one tick - did this for the hell of it :D
Click to expand...

Hi,

I guess you're referring to euro swap note futures on liffe? I'm just looking at them to see if/how they could be incorporated into a systematic trading strategy involving bund/bobl/schatz or possibly bund/bobl/schatz spreads.

Have you continued trading them? If so, how is it going? Are these contracts liquid enough for an intraday trader?

S
 
Nope, they're not tradeable on an intraday basis - spreads possibly but not sure where you'll get the fills from. The only traders seem to be auto spreaders (with schatz or euribor red strips I assume). And of course those bids and offers are pulled approaching any figure.

Experimentation made about 50 euros, then I took a 10 lot position over a figure and there were neither bids nor offers. 4 or 500 euro loss (not quite sure) and lesson learnt.
 
Ok, so not to trade intraday over figures, then... However, as long as there are autospreaders there most of the time, it should be tradeable against the bund for example, or is the spread way to big? I wouldn't be trading it for a tick or two anyway. I guess I'll need to look into this more.
 
spread is only 1.5 ticks most of the time, so if you really wanted to then you could do it, yes.
 
That sounds like it might be useful for the type of model I had in mind. I'll definitely look into it, then.

Much appreciated!
 
Hedging with swapnotes!

Has anyone hedged use swapnotes?
I am rookie at this. I am looking to hedge a portfolio of europeen bonds with a 10 year euro swapnote. Supposedly it's a better hedge than the one with standard bond futures (FGBL) but i don't know how it's done (never played with swap in real life. online on paper).


Lucian
 
That's kinda the point of them. I don't recommend trying to trade them though as a local, absolute waste of time! Perfectly reasonable 1.5 tick spread on them if you want to actually use them though :)

The hedging is reasonably simple, what do you want to hedge?
 
arabianights said:
That's kinda the point of them. I don't recommend trying to trade them though as a local, absolute waste of time! Perfectly reasonable 1.5 tick spread on them if you want to actually use them though :)

The hedging is reasonably simple, what do you want to hedge?
Click to expand...

Hi arabiannights!

I want to hedge a portfolio of 8 bonds (different europeen countries) but i don't know exactly how to do this. I computed the duration and sensibility of the portfolio. What should i do next? I wrote to a guy at ICAP and asked for the ISDAFIX rate for the 10y Euro swapnote - i hope i persuaded him because it's normally not free.

Thanks!

I remind you that i have never did this kind of stuff before. I am just coming out of the research part of finance so my experience with real trading is limited.
 
Yes. If you need more details here are the bonds:
OAT 8,5% 26DEC12 ISIN: FR0000570780
OAT 8,5% 25OCT19 ISIN: FR0000570921
BELG 4,6 % 4JUN09 ISIN: BE0000948753
OLO 4% 28MAR14 ISIN: BE0000314238
NEDER 4,5% 15JUL17 ISIN: NL0006007239
NEDER 5,5% 15JAN28 ISIN: NL0000102317
BUNDANL.V.94/24 ISIN: DE0001134922
BUNDANL.V.98/07.28 II ISIN: DE0001135085

As i told earlier, i computed all indicators for the portfolio. I am looking to find the hedge ratio.
 
so you want to leave credit risk out of the equation?

(not that I'd know what to do of you didn't)
 
Of course i want to hedhe against all risk. I don't know where this "credit risk" comes from? The bonds are issued by governments! (i probably look like a dumb-ass now, but as I told you i am just starting and have online a limited theoretical background in finance).
 
lucidinbr said:
Of course i want to hedhe against all risk. I don't know where this "credit risk" comes from? The bonds are issued by governments! (i probably look like a dumb-ass now, but as I told you i am just starting and have online a limited theoretical background in finance).
Click to expand...

lol... Don't worry mate, the chances of you getting a definative answer from any of us are zero.

Well different governments have different creditworthiness... any change in credit is going to have an impact on the price of the bond - to hedge the credit risk, you'd have to use CDS on the individual government for each of your bonds issued by them.

Lets ignore that. And they are all in the same currency, so we can ignore that too.

I assume what you are saying is that you have a portfolio of bonds and you want to hedge them against further interest rate changes, and you have heard that a Swap is better to use than a future?
 
By the way lucid I asked Gecko to answer this as he writes more lucidly and is far less lazy. By the way you don't - or shouldn't - need the ISDAFIX for this...
 
Ooooh-la-la, lucid, you're long some OLOs, you poor dear... Must have been a somewhat painful day for you today, what with Belgium (and Greece and other periphery) widening to Bunds massively.

Just out of curiosity, how did you end up with this eclectic portfolio? What MrGecko was alluding to is that, unbeknownst to you, you're running all these risks that you seem to be unaware of. Moreover, if you start hedging your bonds with swapnote futures, you're gonna be adding swapspread risk to the mix. I would STRONGLY advise you to stay away until you actually understand the nature of all these risks.
 
Martinghoul said:
Ooooh-la-la, lucid, you're long some OLOs, you poor dear... Must have been a somewhat painful day for you today, what with Belgium (and Greece and other periphery) widening to Bunds massively.

Just out of curiosity, how did you end up with this eclectic portfolio? What MrGecko was alluding to is that, unbeknownst to you, you're running all these risks that you seem to be unaware of. Moreover, if you start hedging your bonds with swapnote futures, you're gonna be adding swapspread risk to the mix. I would STRONGLY advise you to stay away until you actually understand the nature of all these risks.
Click to expand...

What Liffe says it that the swapnote is better than normal bond futures because it uses the swap rate curbe which is better than the bond yield curve.

I probably should have mentioned that what i am doing is just on paper for the moment. I don't actually own those bonds. I want to simulate this hedge to see how it handles and compare it to other methods.

Lucian

p.s: it talked with a guy from ISDAFIX and i got the quotes for the 10y swap as of yesterday. :)
 
lucidinbr said:
What Liffe says it that the swapnote is better than normal bond futures because it uses the swap rate curbe which is better than the bond yield curve.

I probably should have mentioned that what i am doing is just on paper for the moment. I don't actually own those bonds. I want to simulate this hedge to see how it handles and compare it to other methods.

Lucian

p.s: it talked with a guy from ISDAFIX and i got the quotes for the 10y swap as of yesterday. :)
Click to expand...

Do NOT listen to what LIFFE tells you, or rather take it with a large chunk of salt. How exactly can they, with a straight face, claim that one curve is 'better' than another?

As I said, the most important thing is that you need to understand what risks you're running. By hedging bonds with swaps you're adding a risk factor, not removing.

As mentioned earlier, you don't need ISDAFIX to price the swapnote. It's designed like a bond future, i.e. based on a price for a hypothetical forward-starting 2y swap.
 
Do anyone know if there an equivalent instrument for USD ?
I'm using Euro SwapNote to hedge Swaps in EUR for 2 year and I love the fact of not having to manage the BOBL implied credit risk or TED spread.
Now i'm starting an USD Swaps book, but i would like to maintain the strategy. Anyone have an idea?
 
You must log in or register to reply here.

Similar threads

M
Free currency charting
Replies
1
Views
1K
£10kLoser
£10kLoser
I
FTSE Futures tick data
Replies
3
Views
2K
david22
D
T
- - - Currency Futures - - -
Replies
0
Views
1K
Trendguy
T
A
High quality commodity futures data?
Replies
3
Views
3K
alittlebluebug
A
Z
First Weeks of PAIN
Replies
16
Views
4K
pocketaces303
P
Top