Examine the above "Y&S" screen for Altria's (MO) 10.2% of 2039 bond. Please note that the benchmark Treasury (0.625% of 2030) price is 99.133% of par (199+4.25/32). Assume that you buy $1 million par of the Altria bond, then sell short an amount of the 0.625% 2030 Treasury such that your initial margin for the short is 50%, where short margin = Equity/(value of the short position), and Equity is the value of the long position less the value of the short position. How much can interest rates rise (in basis points) before your margin drops to 30%? Show your work, including the amount of the Treasury that you decide to sell. (Assume rates change tomorrow so you can ignore passage of time). Yield and Spread Analysis 95 Buy 90 Sell 101
to save benchmark MO 10.2 02/06/39 Corp Settings No Notes D Yield & Spread 2) Graphs 3) Pricing 4 Description 5) Custom MO 10.2 02/06/39 ( 02209SAH6 ) Risk Spread 402.26 bp vs 10yTo 08/15/30 Price 166.3295 99-0422 21:38:29 O M.Dur Dur Yield 4.739033]Wst 0.716468 SA Risk Wkout 02/06/2039 @ 100.00 Specific B... Yd 66 Convexity Settle 10/16/200 10/15/20 DV-01 on 1MM Benchmark Risk Risk Hedge Proceeds Hedge Spreads Yield Calculations Invoice 11 G-Sprd 355.7 Street Convention 4.739033 Face 12) I-Sprd 368.8 Equiv 1 /Yr 4.795179 Principal 13) Basis -304.3 Mmkt (Act/360) Accrued (70 Days) 19 Z-Sprd 382.8 True Yield 4.738258 Total (USD) 15 ASW 515.2 Current Yield 6.132 10 OAS 376.8 Workout 10.343 17.409 1.508 1,741 9.435 1,845M 1,696M OAS 10.453 17.594 1.538 1,759 9.552 1,842M 1,000 M 1,663,295.00 19,833.33 1,683,128.33 After Tax (Inc 40.80C % CG 23.800 %) 2.283772 Australia 61 2 9777 6600 Brazil 5511 2395 9000 Europe 44 20 7330 7500 Germany 49 69 9204 1210 Hong Kong 852 2977 6000 Japan 81 3 4565 8900 Singapore 65 6212 1000 US 1 212 318 2000 Copyright 2020 Bloomberg Finance LF SN 516299 6667-3469-1 14-01-20 21 36 51 CDT GMT-5 00 Examine the above "Y&S" screen for Altria's (MO) 10.2% of 2039 bond. Please note that the benchmark Treasury (0.625% of 2030) price is 99.133% of par (199+4.25/32). Assume that you buy $1 million par of the Altria bond, then sell short an amount of the 0.625% 2030 Treasury such that your initial margin for the short is 50%, where short margin = Equity/(value of the short position), and Equity is the value of the long position less the value of the short position. How much can interest rates rise (in basis points) before your margin drops to 30%? Show your work, including the amount of the Treasury that you decide to sell. (Assume rates change tomorrow so you can ignore passage of time). Yield and Spread Analysis 95 Buy 90 Sell 101 to save benchmark MO 10.2 02/06/39 Corp Settings No Notes D Yield & Spread 2) Graphs 3) Pricing 4 Description 5) Custom MO 10.2 02/06/39 ( 02209SAH6 ) Risk Spread 402.26 bp vs 10yTo 08/15/30 Price 166.3295 99-0422 21:38:29 O M.Dur Dur Yield 4.739033]Wst 0.716468 SA Risk Wkout 02/06/2039 @ 100.00 Specific B... Yd 66 Convexity Settle 10/16/200 10/15/20 DV-01 on 1MM Benchmark Risk Risk Hedge Proceeds Hedge Spreads Yield Calculations Invoice 11 G-Sprd 355.7 Street Convention 4.739033 Face 12) I-Sprd 368.8 Equiv 1 /Yr 4.795179 Principal 13) Basis -304.3 Mmkt (Act/360) Accrued (70 Days) 19 Z-Sprd 382.8 True Yield 4.738258 Total (USD) 15 ASW 515.2 Current Yield 6.132 10 OAS 376.8 Workout 10.343 17.409 1.508 1,741 9.435 1,845M 1,696M OAS 10.453 17.594 1.538 1,759 9.552 1,842M 1,000 M 1,663,295.00 19,833.33 1,683,128.33 After Tax (Inc 40.80C % CG 23.800 %) 2.283772 Australia 61 2 9777 6600 Brazil 5511 2395 9000 Europe 44 20 7330 7500 Germany 49 69 9204 1210 Hong Kong 852 2977 6000 Japan 81 3 4565 8900 Singapore 65 6212 1000 US 1 212 318 2000 Copyright 2020 Bloomberg Finance LF SN 516299 6667-3469-1 14-01-20 21 36 51 CDT GMT-5 00
