Question
I'm bullish on AAA credit spreads and want to add .1yr of AAA credit risk to my $6 billion portfolio A dealer offers MSFT 3
I'm bullish on AAA credit spreads and want to add .1yr of AAA credit risk to my $6 billion portfolio
A dealer offers MSFT 3 1/2s that matures 11/15/42 (594918AR5). The offer price is 113-12, and the duration of the bond is 17.848 years
a. How much of the bond do I have to buy to add .1 year of AAA credit spread exposure to my portfolio?
b. in order to restrict the duration risk of that bond purchase and and keep the spread risk, How many 15 year futures contracts do I have to sell?
c. Now, I want to add .2 years of spread duration, not spread duration and rate duration. The MSFT bond is low, and buy .2 years. I sell some of the T 2.75% 11/15/2042 bonds I own in the portfolio. It is bid at 110-05, and has a duration of 15.56 years. ITo remove .2 years of rate duration, how much should I sell?
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