After working for a bit now in markets, i will still ask a typically basic question. The problem I am having is everytime i ask the question to someone they either give me me a lame response or one that does not make sense , so......
Why do people that work in the bond market are crazy about mid swaps and using it for pricing ?? Actually what is a decent definition for "mid swaps" is it just a mid point between the bid and ask for the point on the swap curve corresponding / nearest to the tenor they wanna price the bond at ??
Ok after that, if you are a bloomberg user, how to get this elusive midwaps number ? I know there is a function in bloomberg BTMM which has all types of god foresaken rates.....so what do i look at for the US and Europe ?
That is the first time i am actually asking a technical question, but I am sure that the level of talent here is incredible so please share your thoughts........
Cheers
yes its the mid point, lots of foreign issuers swap fixed rated bonds to floating for asset liability purposes, specifically banks. Mid swaps is just a convention used just a different reference rate, in the US for fixed rate bonds we use treasuries. Swap rate is the rate at which the market is will swap from fixed to floating or the oppositive using the bid ask.
Use the USSW monitor, there is a mid swaps column near the upper right for the most common rates otherwise use USSW## Curncy to look up dollar swap rates for the appropriate tenor.
Hi buy credz - could you message me pls - I would like to ask a question of other questions
Thanks for that buycredz, i just wanna understand why are they always crazy trying to use it as a benchmark instead of treasuries or some other indicator. I understand that the swap curve has more points than the treasury curve as well as being more liquid , but it just does not click in my head why should we use the treasury / relevant government spread to benchmark comps against..........anyone wann shed more light on this ?
well its kind of a round abound way of answering the qustion, but here goes. We fixed income credit pms are mostly concerned with relative value as most are compensated relative to some benchmark. So the only way to out perform the benchmark is to take risk aka duration, spread risk, convexity, etc. So we view each new issue relative to other outstanding corporates, the only real way to see absolute value is to look at z spread or i spread (some look at g spread) to normalize the different maturities and other different characteristics of each bond. For example, MSFT is bring a couple bln corporate in us dollars today (3s/5s/10s/30s)...the initial price talk is +90 to the old bond; its outstandings are +85 bid; Since the 39s (the outstanding bond is different than the new bond...shorter maturity, higher coupon, blah blah blah....i need to compare it not only to the outstanding msft 39s but other tech bonds. With the 39s basically at 132 z and the new deal coming with at ms + 125 unless they jack it in on us which they probably will since book in north of 8bln...i think it is a couple cheap since the 39s trade with almost a 110 dollar price, I would rather own a par bond 7bps tight to the higher dollar priced bond. So I think fair value is probably 80-82bps so I will buy the new deal. Sorry for the long winded answer, but its just allows pms to look at relative value since that is really all our job is. Hope this helps.
ok , the most stupid question is what are pms ?? maybe coz i live on the other side of the atlantic so the term does not ring a bell..... I kind of understand what you are saying though the answer kinda looses me in the middle, try paragraphs everyonce and a while :) though i appreciate your effort
pretty sure he means portfolio managers. He added an s to make it plural.
lol pms is a syndrome, it exists on both side of the atlantic....
Sorry got side tracked today- yes I mean portfolio mgr. Paragraphs are only useful in ibanking. I have to fit my message in a bloomberg so paragraphs are overrated. I was just trying to show that reason our industry uses spread is that it is more easily comparable than yield or price due to differences in cash flows, timing of cash flows, and optionality of certain bonds. In credit option adjusted spread is used as a comparison, it doesnt matter which metric you use (g spread, z spread, i spread, etc) it is just a way to compare relative value of one bond to another. If you want more detailed information pick up any book on credit portfolio management.
I totally get you about how you need something easily comparable like the different spread metrics ....its just gets on my nerves with this mid swaps thing
Rumpy Pumpy Bumby.
If pricing over MS is it usually assumed to be a fixed rate product? Or can you price over a MS curve?
Please note in this case we aren't talking about bonds or loans but schuldscheindarlehens (SSD - a german bilateral/private placement instrument which can be both fixed and floating).
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