Building a Total Return Series for Interest Rate Swaps

Summary

The document considers how to build a total return time series for interest rate swaps, including market-value changes and carry or roll, for use in trend-following research. One suggested route is to use an existing swap total-return index if accessible. For a self-built series, the proposed approach is to enter a par swap periodically, then mark it to market each day using updated swap curves and record daily profit and loss.

The response does not provide detailed valuation formulas, curve construction steps, or empirical results, so implementing the method requires further data and modeling choices. It also raises a practical instrument-selection question: swap data and construction may be less convenient for a CTA trend strategy than bond futures. This is a suggestion rather than a demonstrated comparison, and the appropriate choice depends on the research objective and available data.

Key ideas

• A swap total-return series should capture both valuation changes and carry or roll.
• A self-constructed series can periodically initiate a par swap and mark it daily to updated curves.
• Existing swap total-return indices may provide a ready-made alternative when available.
• Bond futures may be operationally simpler for some trend-following research, though no comparison is demonstrated.

Tags

# Total return time series for an interest rate swap


# Total return time series for an interest rate swap












Without paying for a bespoke dataset or tool, how can I go about creating a total return time series for irs eg for 10y sofr swap such that it includes spot price move + carry/roll?

I’m doing this so that I can generate cta trend following signals on the total return time series of IRS across tenors and currencies

## Answer by Helin (score 2)

https://quant.stackexchange.com/a/77192

Do you have access to BBG? Search for U.S. Bellwether Swaps Index. Total return indices are available from 3m to 30 years. These are legacy Lehman/Barclays indices and they continue to be calculated. An old reference paper is available at https://www.pm-research.com/content/iijfixinc/12/2/28.

If you want to calculate this yourself, you'd assume that you enter into a par swap at the end of each month/quarter, then simply mark-to-market this swap on a daily basis using updated swap curves to compute the daily P&L.

Given that you're trying to generate a CTA trend following strategy, I wonder whether using IRS is the way to go. It might be easier to work with bond futures.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.