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Government Bond Flies and Their Execution Quoting

Article Quant Q&A · Author: Jan Stuller
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Summary

The document asks whether government bonds in major currencies trade as curve flies, rather than only as individual securities. A fly combines positions across three maturities to express a view on the curve's relative shape. The question also raises whether strategy execution can reduce bid-offer costs compared with trading each bond leg separately, drawing a comparison with broker-quoted swap flies.

The response confirms that bond flies do trade and points to a terminal function for a rough indication of bid-ask spreads. It also says brokers may post runs for clients with access. This establishes that strategy execution is available, but gives no spread estimates, specific markets, conventions, or evidence quantifying savings. The answer is brief, so traders would need market access and current quotes to assess liquidity and compare package execution against separate legs.

Key ideas

  • Government bonds can trade as curve flies rather than only as individual bonds.
  • A fly expresses a relative-value position across three maturities.
  • A terminal function can provide a rough indication of bid-ask spreads.
  • Broker runs may provide additional quoting information to market participants with access.
  • The document gives no numerical estimate of execution savings versus trading each leg separately.

Tags

Fixed incomeExecutionMarket microstructure
Full text
# Do Bond-flies trade?


# Do Bond-flies trade?












A simple question: do G10 or at least G5 government bonds trade as flies, or only as individual bonds?

I know for a fact that swaps for G5 currencies are quoted by brokers as various strategies, i.e. flies (5Y - 2 * 10Y + 15Y for example): and such strategies work out significantly cheaper in terms of bid-offer spreads when compared to executing the swaps individually.

(Obviously individual swap tenors are quoted too).

But I am just wondering if the same applies to Bonds: i.e. do these trade as strategies and if yes, how much of a bid-offer spread can you save on a G5 bond fly, as opposed to trading the bonds individually??

## Answer by AMach (score 3, accepted)

https://quant.stackexchange.com/a/85245

Yes they trade. See {FIT} on terminal if you want rough indication of bid-ask. Bros should also post runs if you can get access.

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.