If you’re long the corporates and you are short the forwards doesn’t this mean you will get more currency appreciation than if you are short the Tresuries and long the corporates? I put down the last one… very confusing I thought.
i put the one with the spread. was a spread tightening?
I would short treasury since you are long treasury in the corporate bond. So the short hedges the treasury.
went with the statement with the currency risk…
I think you are pretty currency neutral as both are affected by currency but you get to benefit from the tightening of spreads.
Long corp and short tsy of matched duration leads to spread exposure. I didn’t take the exam, but that i know for certain.
if you short british bonds, you are participating when currency moves. When you short via futures, it just reflects the price change in the index, not the currency valuation, in my opinion…
sebrock Wrote: ------------------------------------------------------- > I think you are pretty currency neutral as both > are affected by currency but you get to benefit > from the tightening of spreads. agreed
you are currency neutral. but you have locked in a spread and will benefit if spreads tighten
cant recall the exact answer- but no net GBP exposure
sebrock Wrote: ------------------------------------------------------- > I think you are pretty currency neutral as both > are affected by currency but you get to benefit > from the tightening of spreads. agreed So is it A?
GoRoyals Wrote: ------------------------------------------------------- > if you short british bonds, you are participating > when currency moves. When you short via futures, > it just reflects the price change in the index, > not the currency valuation, in my opinion… Unsure what you meant by index, but if you short gilts or sterling futures (GBP denominated), you receive or pay margin in pounds so you indeed have FX exposure.
i had a hard time on this one as well. i ended up put currency risk in. he expects spread to narrow, that why he long corp and short T. this will surely pick up spread. the hard part is currency. i believe it has currency impact for the period holding the t futures. i think he could do a synthetic position by short t futures and deposit cash in dom currency. this one has no currency impact. so the long corp bond leg has currency risk and it carries to the entire position.
Hey, still not sure what counts as discussing specific questions, but think it is ok to discuss the general concept? If you are an investor based in the US and go long one type of GBP bond, and short another, you have not hedged your currency exposure. The point of the trade is to generate a profit from the change in value of the two bonds, when this happens your profit will be GBP based and exposed to currency moves. My 2c…
But haven’t you also hedged the movement in the risk free rate? If the spreads stay constant and rates on British Gov bonds increase, the price loss on the corporates is offset by the price gain on the short gov bonds. Are you hedged rate and currency? I don’t recall that being an option.
clmgd30 Wrote: ------------------------------------------------------- > But haven’t you also hedged the movement in the > risk free rate? If the spreads stay constant and > rates on British Gov bonds increase, the price > loss on the corporates is offset by the price gain > on the short gov bonds. > > Are you hedged rate and currency? I don’t recall > that being an option. Any gains will be in an account in GBP. If GBP depreciates, you lose, simple as that.
So in this hypothetical question, you hedged your Int Rate risk but left your FX risk and spread risk (which you were trying to exploit in the first place) exposed? Please tell me this is the case.
yes that’s what i thot. it is my opinion which may not be fact. clmgd30 Wrote: ------------------------------------------------------- > So in this hypothetical question, you hedged your > Int Rate risk but left your FX risk and spread > risk (which you were trying to exploit in the > first place) exposed? > > Please tell me this is the case.