asset swap convention for TIPS
Posted: May 8th, 2025, 7:14 pm
hello peeps, please enlighten me - whats the convention for asset swap spreads on US inflation linked bonds?
i am guessing its like this
say your bond dirty nominal price is 122, dirty real price is 95 , and current par = 122/95*100 ~ 128.4
then for bond leg, your notional = 100,
for funding , your notional = not sure, either 122 , or 128.4
and at maturity you have a cashflow of 100*CPIT/CPI0 minus the notional of the other leg
and you solve for the spread such that the value of the package = 128.4 = 122 + npv of payer swap
i am guessing its like this
say your bond dirty nominal price is 122, dirty real price is 95 , and current par = 122/95*100 ~ 128.4
then for bond leg, your notional = 100,
for funding , your notional = not sure, either 122 , or 128.4
and at maturity you have a cashflow of 100*CPIT/CPI0 minus the notional of the other leg
and you solve for the spread such that the value of the package = 128.4 = 122 + npv of payer swap