Spreadsheet Applications

Relative value bond spread trade: repo funding calculator

This spreadsheet is featured in the book "The REPO Handbook" by Moorad Choudhry (Butterworth Heninemann 2002).

It calculates the net funding gain or loss for a two-bond relative value position. In effect, it shows the net break-even, in terms of basis points, that the trade must make to be profitable. It is currently set up for United Kingdom gilts, as at May 1997, however the user may easily adjust the relevant cells to bring the worksheet up to date. The list of non-business days is maintained in the Visual Basic module.

The user enters the bond price, coupon and maturity date in columns B, F and G.
Long positions are entered separately to short positions.
The repo rate applicable to the bond position is entered at column Q.
The net funding gain or loss is shown for each bond against all the other bonds in column S.

Note that this means a long position against all short positions, and vice-versa.