how do hedge ratios work? (bund/bobl/schatz)

[fejjelafalnak]

Hi,

Anyone out there who could explain me how hedge ratios actually work?
I trade bund/bobl/schatz fly.
According to bloomberg the bund/bobl hedge ratio is 0.536 and bobl/schatz is 0.388.
If I understand it correctly that means bund/bobl should be traded 1-2, bobl/schatz should be 2-5.
So the fly ratio should be 1 bund 4 bobl 5 schatz.
But the ratio everyone is using is 1-3-4.
The 1-4-5 ratio is more volatile and it is really determined by what the bobl does.
At the end it is almost like an outright bobl trade.

If theoretically the bobl is better hedged then why is the fly more volatile?
Or I don't understand how to use the hedge ratios?
Or the bloomberg hedge ratios are b*llsh*t?
How are these hedge ratios calculated anyway?
:?::?::?::?::?:

Any help is really appreciated.

 

[Martinghoul]

BBG hedge ratios are more or less correct (they do it only very slightly wrong). They're calculated by taking the spot DV01 of the CTDs for the contracts at the prices implied by the futures.