Bond Jargon
Hi All
Sorry for the very basic question. I'm use to the swaps lingo when it comes to bid / ask = pay / receive (whether outright, curve or fly).
However when it comes to bonds being quoted in in yields, I understand that bid / ask = buy bond / sell bond . However, I do not understand the concept of 'pick' vs. 'give' in yield terms. I am not sure if I am overthinking it or just haven't understood the fundamental. Any help would be very much appreciated.
Thank you, Fellow chimp
I am assuming you are seeing Pick vs Give in trade ideas presented to you by the sales traders? if thats the case- pick up yield meaning cheaper bond that will give you more yield than your existing bond.. give up yield- more rich bond that will give you better total return action vs your existing bond
Hey SGL,
Thanks very much for the quick reply. It is true I do see trade ideas that indicate pick or give. Thanks for explaining. That makes a lot of sense.
Similarly, what does 'pick' and 'give' mean in relation to a flattener and steepener. For example: if I enter into 2s10s flattener, I pick X. What does 'pick' mean here? What am I picking?
Thanks v much, Fellow Chimp
in any trade, you are buying one thing, and selling something else. (if an outright trade, then the other thing is cash).
So, in a 2 legged bond trade, lets say you have bond A and Bond B. If you are buying A with a yield of 2.85%, and selling B with a yield of 3.03%, then the convention is to quote the yield spread (18 basis points).
If the bond you are buying has a higher yield from the bond you are selling, then you are "picking up" that yield diff. However, if the bond you are buying has a lower yield vs the bond you are selling, then you are "giving up" yield. This is where pick vs give comes from. In the case of buying A (2.85%) vs selling B (3.03%) you would be giving 18 basis points.. If instead you were selling A and buying B, then you would be picking 18 bps.
This is irrespective of what the bonds are.
Now, if you happen to be buying a bond with a longer maturity date from the bond you are selling...then you are putting on a flattener...and the opposite would be a steepener.
So, for the 2/10 curve trade..if you sell 2yr (2.43%) and buy 10yr (2.86%) then you are picking 43 bps...because you are buying a note with a higher yield.
Another way to think of this is assume you outright own the leg you are selling. So, in this case, assume you just outright own the 2yr note. If you then do a flattener (sell the 2yr vs buy the 10yr) then you are swapping your 2yr note for 10yr notes...and since the 10yr has a higher yield (for now) you are getting a position (the 10yr) with a higher yield than what you used to have (the 2yr)...and thus you are "picking up yield".
This terminology is most often used with more micro trades in the 30yr sector....like a 2040 vs 2041 bond because at that part of the yield curve, sometimes the curve has funky kinks and its not always true that longer maturity bonds have higher yields...the curve is pretty flat, and so they go both ways around zero. However, the basic terminology holds.
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