QuoteOriginally posted by: AdonizHi martin..thank youSetting up a bull flatteners using swaps. (Is this the corrrect way?)I forgot the negative but excluding rolldown then the carry on this trade would be +ve 179Bp?Well, it's just a 'flattener', not a 'bull flattener'...Secondly, what are the notionals of the two trades in this structure? More specifically, what is the total cash amount you're expecting to receive after 6m (assume, for simplicity, that the fixed side pays semi-annually as well)?

not duration neutral so say 10M on both sides

QuoteOriginally posted by: Adoniznot duration neutral so say 10M on both sidesOKI, then you should be able to do what you're doing to get the carry. However, I certainly wouldn't call such a structure a flattener.

Thank you very much Martin...if it was duration neutral (flattener).....what would change in my approach....assume duration neutral say 10m 10y en 35M 2Y

QuoteOriginally posted by: AdonizThank you very much Martin...if it was duration neutral (flattener).....what would change in my approach....assume duration neutral say 10m 10y en 35M 2YNot sure about your notionals, but nothing should change in your approach, as long as you count your carry in terms of actual cashflows that you'll net pay/receive.

Thank you...VERY CLEAR!!!

hi, this is how I'd explain this. you have a empty book and did a 5y swap today. the PV is X0.tomorrow comes, your swap is 5y-1day maturity. with the same swap curve as yesterday, your PV is X1.diff bet X0 and X1 is the "roll down the curve" or swap carry.This swap carry depends on 2 elements. a) the shape of your forward curve and b) the discount curve.if either of these curves aren't smooth you'll get a very wierd carry, like today +ve and tomorrow -ve.

Wow having searched and read it all I am properly confused now. Case of more reading making it more hazey.A lot of obvious assumption below, but for illusatration purposes, please assist my junior mind.South Africa curve is positive sloped, we going into a hiking cycle and traders looking to enter 2s10s (2v10) flattener trade3 month JIBAR (our reference rate) is 5.575%2yr swap at 6.55%10yr swap at 8.40%2v10 = 185bpsIf I pay 2yr at 6.55%, rec at 5.575%, I am running positive carry of 97.5bps (paying 6.55% and funding my trade at 5.575%) If I rec 10yr at 8.40% pay 5.575%, I am running negative carry of 282.5bps (recieving 8.40% and placing at 5.575%)The net carry is 185bps against meIf rates dont move for the next 3 months at all and the 1.75yr swap is 6.35%9.75yr swap is 8.38%I would have net carry now of 18bps more against at 203 (on a MtM basis purely), thus in 3 months the roll down is 18bps negative???????If we get a rate hike in 3months time of 50bps3mJibar=6.075%2yr = 7.00%10yr = 8.55%I am now in a situation where on a MtM basis I have gained since the net carry is 155bps, so I have "made" 30bps in 3 monthsSo essentially this is a very expensive trade to put on if rates track sideways or worse fall?Thanks for help

QuoteOriginally posted by: hlbeckleyIf I pay 2yr at 6.55%, rec at 5.575%, I am running positive carry of 97.5bps (paying 6.55% and funding my trade at 5.575%) If I rec 10yr at 8.40% pay 5.575%, I am running negative carry of 282.5bps (recieving 8.40% and placing at 5.575%)The net carry is 185bps against meOk so a year later just reading this, surprised i didnt get any commentsIf i pay 6.55% and rec at 5.575% that is negative carry surely of 97.5bps that i pay away to be in this trade but make up in the 10y

hi,think you've got the directions wrong..if you receive 10y your carry at inception will net be positive. therefore in your example:Receive fixed @ 840bps and pay fixing @ 557.5 bps => (840-557.5)*0.25*df is your carry upfront, which is ~+70bps over 3m.you can then think of roll down on a 3m horizon which is again positive in the case that the YC is upward sloping. so this will be the 10y swap - 9.75y swap which gives your bp running roll down.BUT, you cant just start adding numbers such as your carry upfront and roll down (in bps running) together, you need to divide your carry by the DV01 3m fwd 9.75 yr swap to make the numbers comparable (to some extent) and then add. Therefore your carry will be equal to something like 7bps running + roll down which is 20bps running for the 10y swap.TOTAL = 27bps over a 3m horizonEDIT: on a separate note if you are talking about numbers like 150bps in carry over a 3m horizon, alarm bells should really start ringing as that seems to be a pretty decent return?! (obviously barring what happened in ZAR earlier this month )