Hedge a government bond book with note futures while the curve moves day by day.
Keep the book's net DV01 inside ±$1,000 at every close for four weeks without overpaying in costs.
Day 0 of 20
Net key-rate DV01
| Instrument | Size | Price | Value | DV01 | 2y | 5y | 10y | 30y |
|---|---|---|---|---|---|---|---|---|
| 2Y bond | $20,000,000 | 99.898 | $19,979,596 | +$3,766 | +$3,766 | $0 | $0 | $0 |
| 7Y bond | $15,000,000 | 99.356 | $14,903,361 | +$8,841 | +$349 | +$5,328 | +$3,165 | $0 |
| 10Y bond | $10,000,000 | 100.823 | $10,082,273 | +$7,982 | +$247 | +$755 | +$6,980 | $0 |
| 25Y bond | $6,000,000 | 104.559 | $6,273,556 | +$9,196 | +$156 | +$478 | +$3,609 | +$4,956 |
| NET | $51,238,786 | +$29,784 | +$4,518 | +$6,562 | +$13,754 | +$4,956 |
| Bond | Price | CF | P/CF | Basis |
|---|---|---|---|---|
| 4.25% 6.6y CTD | 99.434 | 0.9066 | 109.678 | 0.000 |
| 4.50% 7.5y | 100.834 | 0.9112 | 110.660 | 0.895 |
| 4.75% 9.0y | 102.679 | 0.9150 | 112.218 | 2.324 |
| 5.00% 9.8y | 104.743 | 0.9273 | 112.955 | 3.039 |
The CTD changes after a +150 bp parallel move.
| Scenario | Bonds alone | Hedged |
|---|---|---|
| +25 bp parallel | −$734,464 | −$734,464 |
| −25 bp parallel | +$755,887 | +$755,887 |
| Steepener | −$41,137 | −$41,137 |
| Flattener | +$44,084 | +$44,084 |
| Belly +20 bp | −$130,663 | −$130,663 |
Instant P&L if the curve reshaped now.