2s10s30s Butterfly

J

johnnyqpublic

I'm hoping this is the right place to ask a newbie question about the bond market.

I've heard some talk about the UST 2s10s30s curve (or butterfly) recently, but don't understand exactly what it is. Also, is it something that can be synthesized (data-wise) from the 2-year note, 10-year note, and 30-year bond futures?
 
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One thing to be aware of is that the ZN CTD is, normally, a 7y maturity bond and ZB CTD is, normally, a 25y bond. Thus, using ZT-ZN-ZB, you'll be trading a 2s7s25s fly. Using the newer ultra-long contract will get you closer, i.e. allow you to construct a 2s7s30s fly.
 
Quote from Martinghoul:

One thing to be aware of is that the ZN CTD is, normally, a 7y maturity bond and ZB CTD is, normally, a 25y bond. Thus, using ZT-ZN-ZB, you'll be trading a 2s7s25s fly. Using the newer ultra-long contract will get you closer, i.e. allow you to construct a 2s7s30s fly.
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Erm, off the top of my head:
CTD for Long Bond is around 16 years (2026).
Ultra Long CTD is roughly 25y (2036) at the moment.
You could construct a 2s10s30s proxy by trading dv01-weighted amounts of each (that is, tu + ty + us + wn), but that gets way too complex. Truth is, if you are trying to capture the third moment of the curve, 2s7s25s would be good enough. In fact, with fair liquidity in 2s,5s,10s, LB and UT you could do all sorts of crazy things (boxes etc).
 
Yes, you're absolutely right, sle... I stand corrected, the ZB CTD not a 25y bond, but rather a 2026 maturity bond, i.e. a 15y bond. You're right about the Ultra too. So it's 2s7s15s and 2s7s25s and, as you say, the 2s7s25s should be good enough.
 
Quote from Martinghoul:

Yes, you're absolutely right, sle... I stand corrected, the ZB CTD not a 25y bond, but rather a 2026 maturity bond, i.e. a 15y bond. You're right about the Ultra too. So it's 2s7s15s and 2s7s25s and, as you say, the 2s7s25s should be good enough.
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If anything, 5s10s30s in bonds does look a bit out of place - last time we hit these lows was right before the Fed and it bounced pretty hard.
 
Quote from Martinghoul:

Well, FWIW, the 5s10s30s fly is at -15 in Swedish guvvies, so that's the fairest of 'em all for me.
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do people actually live in Sweeden? :)
 
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