The analysis on the trading of on/off the run Taiwan Government bond

• Main Authors: Cheng-Yu Chang, 張丞佑
• Other Authors: Chien-Chung Nieh
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/04802860644015396814

碩士 === 淡江大學 === 財務金融學系碩士在職專班 === 97 === The purpose of this dissertation is to discuss central government bonds with maturity of 10 years that were issued. Using ten year government bonds as the main subject, the focus of the study will be the relationship and price differential between the on the run and off the run ten year bonds. 3652 data samples were collected between April 1 of 2001 and March 19 of 2008. This dissertation will be comparing the strategies of short selling on-the-run bonds and going long on off-the-run bonds. Analysis on market irrationality might provide arbitrage opportunities. Conclusion: 1.After analyzing a total of 14 combinations, generally central government bond holdings tend to flow towards stable insurance firms, with the exception of on-the-run benchmark 10 year bonds. For the benchmark 10 year bonds, after 6 months of being on the market, there will be newer on-the-run bonds being issued. Due to prolific short term trading on swapping out current bonds for the newly issued, current on-the-run bonds experience selling pressure. With this selling pressure, the yield of the current issue will rise to the level of the previous older issue, narrowing the gap. 2.On the run bonds and off the run bonds yield differential must be more than 15 basis points in order to justify arbitrage opportunity, any less than 3 basis points would negate any reasons of engaging in the arbitrage. 3.Over the past 7 years with the 14 combinations, this strategy has reached profit goals after back testing.