Basis Adjustment to a Swap curve

frattyquant · September 20th, 2011, 2:06 pm

I'm looking for a pdf that is something like a basis adjustments for swap curves, and google has been of no help, hull and the other books don't really seem to cover this topic. Maybe one of our excellent rates traders on here can help?

nike61062x · May 22nd, 2012, 5:37 pm

Are you looking for libor basis adjustments (such as 3s1s in USD) or for ccy basis swap adjustments?

frattyquant · May 23rd, 2012, 6:15 am

I meant the adjustments to deposits/futures that you have to make to bring them to the same basis as the underlying swaps such as 1s3s in the US or 3s6s in euro.

nike61062x · May 23rd, 2012, 6:28 pm

I dont know of any good papers, but ask questions and I ll do my best to answer.

frattyquant · May 24th, 2012, 5:24 am

thanks! i was just wondering how you decide how large the basis adjustment should be? is the idea to bring the 1m deposit close to the 3m deposit (in usd) so par swaps price to 0?

nike61062x · May 24th, 2012, 5:34 pm

3s1s markets are quoted in the brokers. Basically 3s1s is a credit indicator. In theory, you would rather lend money for 1m, compared to 3m. Thus as the basis goes to the right, there is more of a credit concern. The way I have always looked at the market is in 3m swaps versus 1m libor (3 periods of 1m libor, versus a fixed period of 3m libor). Currently, 1y 3s1s is close to 22bps (pay 1m + 22bps to rec 3m libor flat)

frattyquant · May 25th, 2012, 6:01 am

Thanks! I didnt know that 1s3s was quoted in the broker markets! If you wouldn't mind taking two more questions: What would a termsheet for 1s3s look like? Is there a bloomberg ticker for 1s3s?

nike61062x · May 25th, 2012, 2:45 pm

in usd, the 1m leg is paid every 3months, to line up with the 3m lieg. the 1m leg is compounded flat. act/360 on both sides. USBA1 is the 1y 3s1s bbg ticket

frattyquant · May 28th, 2012, 10:25 am

thanks!

Josip76 · October 8th, 2012, 7:23 pm

hi nike61062x,Im looking for a pdf document that outlines ccy basis swap adjustments could you recomend some please. For libor basis adjustments im using "Two Curves One Price" and its pretty good.