CCY Bond Enhancements | Weekly Release 10/23/20

Enhancement #1


[EUR] Enhanced the color management in the Curve Analysis so traders can use different colors for low and high coupons

Traders who would like to see the bonds in each country divided into High coupon and Low coupon bonds can do so by leveraging the “Color Management” under “Format”. In this menu, the trader can set the coupon cut off under the “Hi/Lo Cutoff” column. Then select the columns to set the colors for the “Hi Color” the “Lo Color”. Finally, hit “Apply”.

Once the divide in coupon is set, the trader can apply this to the Curve Analysis and plot the high coupon curve against the low coupon curve to compare and analyze.

Enhancement #2


Added the historical data for the XCCY ASW


Traders can see the historical data for the XCCY ASW column. To load the historical data, calculate the column, then <double click> the cell to open the historical data.

Note: Will only show the XCCY ASW historical data for the bond specific historical data.

For reference, see how the XCCY ASW is calculated below.

The live Cross Currency ASW for a bond is calculated through a Cross Currency Basis Swap which has the same maturity with the bond.


For the receive leg in this cross-currency basis swap, the floating index is default index of bond currency. i.e. if in USD bond roll, the default index will be LIB3M, and if in EUR bond roll, the default index will be LIB6M. The corresponding forward curve will be used to derive receive leg cash flows. Then, we set the ASW of this bond as the spread in receive leg.

For the pay leg in this cross-currency basis swap, the floating index is selected from Calculation Panel by users. The corresponding forward curve will be used to derive pay leg cash flows


Then the breakeven rate of this cross-currency basis swap will be the cross currency ASW of the bond, which is defined as the spread adding on pay leg to make the NPV of this basis swap equal to 0.


The following graph will show the structure to calculate live cross currency ASW:

The historical Cross Currency (XCCY) ASW for a bond is estimated using the bond historical ASW data and the historical cross currency basis data which has the same maturity with bond.


This basis rate is estimated by linearly interpolating the nearest two basis terms. The formula is as follows:

where

y: the estimated basis rate of the basis

y1: the historical basis rate of basis term 1

y2: the historical basis rate of basis term 2

x: the maturity of the basis

x1: the maturity of basis term 1

x2: the maturity of basis term 2


Then historical XCCY ASW will be estimated using the formula as follows:


If we have direct XCCY basis between currencies and indices of two legs, ie USD3M vs EUR3M


If not flip ASW

If bond currency is base currency

XCCY ASW = ASW + estimated basis rate

If bond currency is non base currency

XCCY ASW = ASW – estimated basis rate


If flip ASW

If bond currency is base currency

XCCY ASW = ASW - estimated basis rate

If bond currency is non base currency

XCCY ASW = ASW + estimated basis rate


If we have no direct XCCY basis between currencies and indices of two legs, ie USD3M vs GBP6M. A basis rate will be incorporated to estimate the XCCY basis rate, i.e, we need a GBP 3s6s basis to estimate USD3M vs GBP6M rate.


Since most of XCCY bases which have historical data are LIB3M vs LIB3M, for the XCCY basis pair which is not in 3M vs 3M pair, we need a basis curve of the currency that the index of is not LIB3M to estimate the XCCY basis.


Currently, for the pair with no direct XCCY basis, we only provide the historical cross currency basis between 3M vs 6M, so the following formula is to estimate XCCY ASW between LIB3M and LIB6M.


If not flip ASW

If bond currency is base currency

XCCY ASW = ASW + (estimated XCCY 3s3s basis rate – estimated 3s6s basis rate)

If bond currency is non base currency

XCCY ASW = ASW - (estimated XCCY 3s3s basis rate – estimated 3s6s basis rate)


If flip ASW

If bond currency is base currency

XCCY ASW = ASW - (estimated XCCY 3s3s basis rate – estimated 3s6s basis rate)

If bond currency is non base currency

XCCY ASW = ASW + (estimated XCCY 3s3s basis rate – estimated 3s6s basis rate)

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