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mr-T

Help with bond terminology

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Hi Everyone!

 

I'm struggling to find any information on the web on the following terminology commonly used in the world of Fixed Income:

 

*Basis tightening

 

*Long basis - I know what long means, but not when used in this context

 

*Long duration - ditto

 

I have read that long basis benefits from tightening of bond yields. Can any help me out with an explanation of any of these? I feel like an alien at the moment. :(

 

Thanks,

 

mr-T

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One basis point is equal to 0.01%. When the fade cut its rates recently by 25 basis points, this means by 0.25%.

 

Duration means the change in value of a financial instrument that will result from a 1% change in interest rate.

 

Long-basis means owning a commodity but being short the futures to hedge. The basis is just the difference between the price of the physical commodity and the futures.

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Thank you for all your help.

 

I come with information. With regard to 'long basis' in relation to bonds, this means going long the bond and long CDS. The term 'basis' is a generic term to indicate the risk of an imperfect hedge. In the case of a bond and a CDS, the risk is that the bond's yield curve moves in a different way to the assicoated CDS curve, thereby creating an unpredictable shift from the direction you intend in order to make a profit.

 

Thanks,

 

mr-T

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