Sample Q$3$

A trader anticipates a change in the U$.$S$.$ short$-$term yield curve. He expects all rates to change;

however, he expects a change in the short$-$term rates versus the longer rates, see Table below.

Given this scenario, the shift will be a non$-$parallel and the resulting yield curve will change. The

trader would like to profit from this possible change in the yield curve by trading SOFR $($Secured

Overnight Financing Rate$)$ Futures. The Table displays relevant market information.

a$)$ Complete the above table; fill in the space between the brackets.

See above, the information in bleu on the table.

b$)$ Name and outline the strategy the trader must use. Calculate $($clearly show all steps$)$

the strategy profit$/$loss on July $5$ for $10$ contracts spread, $(BPV=$$$25).$ Will the yield

curve on July $5$ steepen, flatten, or stay the same? Will the Basis increase, narrow or

stay the same? State the Objective, Strategy, and Result of the hedge?