What is the best way to play this? The idea is the spread between interest rates will decrease. I don’t want exch. rate exposure. I’d like to capture a coupon on int. differential semi annually. I’d also like to partially hedge the int. rate exposure. Options 1) -Short US 2yr -Long AUD 2yr -Short AUD/USD forward/swap 2) -Short US 2yr -Long AUD 2yr -Long AUD/USD swaption 3) -fix/fix USD/AUD swap -Long AUD/USD swaption I guess you could add some int. rate swaptions to either the USD or AUD side at whatever strike to partially hedge the int. rate risk. I’m just trying to see what you think the best combo. in terms of -cost -tradebility (how easy is to get out of prior to exp. or to sell to someone else) -leverage (which will allow most leverage) -Ease of pricing/modeling/forecasting/keeping track of position (this is a pretty important factor) I’d appreciate any input you guys can provide here. (all input is welcome, positive/negative) Thanks,
If you are asking this question, it is very unlikely that you can trade FX swaps or swaptions. In any case, if you want to play a narrowing of interest rate spreads you just play it directly - short some combination of US 2-yr and 5-yr bond futures and go long 3-yr Aussie bond futures. Gotta be a little careful of the wacky way in which they quote the Aussie contract.
JoeyDVivre Wrote: ------------------------------------------------------- > If you are asking this question, it is very > unlikely that you can trade FX swaps or swaptions. > In any case, if you want to play a narrowing of > interest rate spreads you just play it directly - > short some combination of US 2-yr and 5-yr bond > futures and go long 3-yr Aussie bond futures. > Gotta be a little careful of the wacky way in > which they quote the Aussie contract. K.I.S.S. touche salesman. Thanks.