Defining Bond Spreads

Bond spreads are used as underlying instruments for generating interest rate curves. A bond spread is basically a swap on a bond.

To define a bond spread product, navigate to Configuration > Fixed Income > Spread (menu action product.BondSpreadWindow) from the Calypso Navigator.

You can also manually change a spread on a bond when pricing.

See Bond Discount Spread for more details.

Contents

- Fields Details

- Adding a Spread to an Underlying

 

Bond Spread Window

» Click Load to load the existing bond spreads.

Select a bond spread and modify the fields described below as applicable.

» Click New and enter the fields described below to create a new bond spread.
» Click Delete to delete a spread.
» Click Save to save your changes.

You can also click Save As New to save the bond spread as a new bond spread.

 

1. Fields Details

Enter a currency for the spread. Loading a saved spread will populate the currency and Id fields.

 

(Fixed Side)

Fields

Description

Maturity

Select the maturity of the swap.

The first field corresponds to the number of years, and the second to the number of months.

For example, a 2.5 years maturity will be defined as:

Date Roll

Select the date roll convention to apply when the maturity date falls on non business days.

Frq

Select the payment frequency of the swap.

Holidays

Click ... to select the payment holiday calendar.

Day Count

Select the daycount convention for calculating the interest rate.

 

(Float Side)

Fields

Description

Maturity

Select the maturity of the swap.

The first field corresponds to the number of years, and the second to the number of months.

For example, a 2.5 years maturity will be defined as:

Date Roll

Select the date roll convention to apply when the maturity date falls on non business days.

Frq

Select the payment frequency of the swap.

Cmp

Compounding frequency schedule. Click the checkbox and choose an interval from the drop down menu.

Holidays

Click ... to select the payment holiday calendar.

Day Count

Select the daycount convention for calculating the interest rate.

Id

Unique id given by the system when the bond spread is saved.

Rate Index

Select the reference index of the swap.

Bond

Click ... to select the bond underlying the bond spread.

Interpolate

Check the Interpolate checkbox to specify a second bond and interpolate the interest rate between the two maturities.

You will be prompted to select a second bond as shown below.

» Click ... next to the Interpolate field to select a second bond.

 

2. Adding a spread to an Underlying

You can open the swap the spread is on by double-clicking and holding ctrl in the curve window. The swap used to generate the spread will open.

» Define a bond spread in the Bond Spread Window. Add fixed/float details.
» Open a curve in a Curve Window. In the underlying tab, add instrument type "Spread" from the drop down.
» Select the defined spread with Id and double-click while holding the ctrl button. A swap window with the fixed/float details will open.