Fifty-Fifty Butterfly Swap

This is the second in a series of differently weighted butterfly swaps. I will adjust the list below, as I add more butterfly swaps:

  1. Cash & Duration Neutral Butterfly (aka Duration-Hedged Barbell)
  2. Fifty-Fifty Butterfly Swap
  3. Regression Weighted Butterfly Swap
  4. Maturity Weighted Butterfly Swap

Note: Although this type of swap shows positive convexity at changes of + or – 25 basis points, it does not necessary display positive convexity for smaller yield changes.

Things to consider:

  1. This swap gets its name from both Wings being equally duration weighted against the body.  The wings each have the same $duration as half the Body, when weighted by par value. (Curve neutral to steepening and flattening shifts, while the Body yield remains constant.)
  2. Like other swaps in this series, instantaneous parallel shifts, either up or down, will show a profit (positive convexity).
  3. Unlike the Cash & Duration Neutral swap, this swap is not cash neutral and requires additional cash to initiate the trade.
  4. More likely be used to take advantage of  arbitraging an expensive Body yield, relative to the Wings.

Allows for analysis of parallel swifts:

Also analysis of steepening or flattening curve movements:


Download: Fifty-Fifty








Don Pistulka
Don Pistulka

Retired Credit Union CFO - Finance
Background: over 40 years in investments, asset/Liability management, banking, securities trader.
Worked for: California Credit Union, WesCorp, CalFed S&L, Crocker Bank, Carroll McEntee, Federal Home Loan Bank Board (D.C.), Western Asset Management, Security Pacific National Bank.


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