Spreads
Hi,
I don’t know if this is a dumb question but I rather ask and figure this out now than later. What is the purpose of looking at the spread between two percentiles or between two different indexes? Eg: spread between SOFR 75th and TGCR 75th? What is this supposed to show? And what is it called to look at data in this manner and what other ways/methods are there to look at data? Where can I learn more about this? Any help would be appreciated.
Looking at spreads allows you to trade relative value. For example, looking at spread between 5y and 10y treasury rates is common to put on yield curve flatteners/steepeners. You will do this in a dv01 neutral pairing so you are insensitive to the general direction of rates and focused solely on the relative value between the 5y and 10y treasury rates
Thanks but this is more specific to looking at a spread of index percentiles. I’m just not sure what that tells, how to interpret it or why that would be something that’s worth looking at.
https://www.newyorkfed.org/medialibrary/media/newsevents/speeches/2017/…
Read thru this - will answer ur question + more. Not a STIR guy so idk if SOFR-TGCR is really looked at but something more common would be looking at EFFR-SOFR (unsecured - secured basis)
The Schaller SOFR textbook would be next step if you want to learn more
I’m in the short end market so I know the composition of SOFR plus what’s described on that pdf (I do appreciate the share though). My question is much more geared to the data manipulation/how people look at different things within the short end market I.e spread of percentiles.. (maybe this is much more of a statistics question?)
And the idea of looking at the spread between SOFR and TGCR is to get a general idea of dealer profitability.. not the most accurate, but a good proxy
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