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#asset-swap #finance #gale-using-and-tradning-asset-swaps
One problem with the par/par asset swap methodology is that the trade is not duration hedged.
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owner: piotr.wasik - Using and Trading Asset Swaps - Giles Gale (Morgan Stanley), p6

s wap a bond at a spread of -40 bp ( we receive floating less 40 bp) and this spread moves to -35 bp, we can unwind the pos ition by paying on a swap of the same notio nal and pay floating less 35 bp to lock in a loss of 5 bp running . <span>One problem with the methodolo g y is that the trade is not duration hedged. This means that the P&L will vary with outright market level, i.e., the par /par spread is directional. The exposure is bullis h. Another problem is that the spread UST 11.25%



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