roll down question

mathew · February 15th, 2011, 5:03 pm

I am rec fixed for 10 swap at 8%. Current 9 year and 10 year rates are at 8.34% and 8.38%. Will my roll down will be mine 8%-current 10 year or it will be 8.38%-8.34%>>4bps/year. I am really confused

Watsoneg5 · February 20th, 2011, 12:02 am

So you're long the synthetic bond by receiving fixed. If you were long a treasury the price change or holding period m2m or roll down would be found by calculating the expected price of your 10yr bond one year from now at a yield that you expect your bond to yield in 1 year. In your example your roll down would be be pretty close to zero if not negative because your price probably wouldn't go up much. The yield would have to go down to like 7.5% to earn a lot here. But you still have your coupon minus financing to add to it.

gammaslide · March 1st, 2011, 11:48 am

assuming you've got an off-market 10yr swap, keeping everything static, then rolldown should be roughly 4bps..