indicator for bond value strategy

CMPT · Post by **CMPT** » Thu Jul 30, 2020 2:29 pm

In designing a long-short "value" strategy for 10Y government bond futures (say of US, EU, UK, JP, CA and AU) using a forward rate as the inflation (proxy) indicator, would the 5Y5Y or the 5Y10Y be more appropriate, a priori?

Martinghoul · Post by **Martinghoul** » Fri Jul 31, 2020 8:28 am

I think 5y5y is probably going to be a safer, more commonly used forward. If nothing else, just 'cause it's sorta "blessed" by the CBanks (there are good reasons why it makes more sense).

CMPT · Post by **CMPT** » Fri Jul 31, 2020 2:40 pm

If 1) 5Y10Y were equally active and liquid as 5Y5Y and 2) bond futures durations were much closer to 10Y than 5Y (which is basically true), wouldn't we want to use the 5Y10Y because it matches the duration of the assets in the strategy's universe?