Forums  > Risk Management  > Swedish Govt Bond Futures - why does Bbg do them differently?  
     
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arkestra


Total Posts: 48
Joined: Apr 2007
 
Posted: 2009-12-22 13:56

A question on Bbg PV01 risk for Swedish Govt Bond Futures.

These have a 1-1 conversion to the (single) deliverable bond at expiry, so I would have thought that PV01 should be based on the forward risk of the deliverable bond - this is the sort of method Bbg typically uses for Bund futures etc (of course they have a conversion factor <> 1 that also needs to be factored in).

However, Swedish Govt Bond Futures are yield-quoted (eg instead of the price, you quote the yield, and use a price/yield on the 6%/n-year base contract bond to get the price). And Bbg shows PV01 based on this price/yield conversion rather than looking at the deliverable bond.

The difference can be substantial. Eg if it's a 2-year future and the deliverable bond is 1.5 years long, then PV01 on a normal bund-like calculation will be something like 75% of the PV01 on the method Bbg is using here. Also the use of a 6% coupon in the Bbg PV01 calculation instead of the actual deliverable bond's coupon causes discrepancies for the longer-dated futures.

I am pursuing Bbg on this, but based on previous experience I am not hopeful of their providing a sensible explanation. Any ideas why the Bbg approach might actually make sense here? Or are they just being lame? I'm trying to keep an open mind, but I can't see why they'd be doing this.


Down pokey quaint streets in Cambridge / Cycles our distant spastic heritage

Kutilya
Quote Machine

Total Posts: 1286
Joined: Jun 2004
 
Posted: 2009-12-22 18:16


I won’t really venture into the BBG calculation part but a few years ago I found out the hard way that there are no Swedish bond futures really, what you can trade is a Bond forward, which if memory serves me right will get registered with the exchange but remains an OTC trade. Unless they have listed Swedish bond futures recently I’d be very careful about anything that comes out BBG.



Splitting tens.

jungle
Chief Rhythm Officer
CSD LLC
Total Posts: 3162
Joined: Jul 2004
 
Posted: 2010-01-05 19:38
Arkestra, shoot me an email and I'll help you with this.  Or put an email address in your profile.  Big Smile

aschon


Total Posts: 164
Joined: Jun 2008
 
Posted: 2013-04-22 10:37
sorry for bumping this old thread.

@jungle: do you mind sharing the info? Email address is in my profle. Thanks!

In practice, this works, but how about in theory?

figoliuxi


Total Posts: 2
Joined: Apr 2012
 
Posted: 2015-12-02 05:06
Sorry to get this on top again. Can you send me the info about the solution to the question, please. My email is xliu83hawkiit.edu

figoliuxi


Total Posts: 2
Joined: Apr 2012
 
Posted: 2015-12-02 05:41
Just figured it out. Does the PV01(FUT)/PV01(Govt Bond) is actually the hedging ratio. That being said, BBG calculation is correct. It just means the hedging ratio (Conversion Factor) is not 1.
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