Bond Position

ORE defines the product as follows:

A bond position represents a position in a weighted basket of underlying bonds.

Source: ORE User Guide, Products catalogue, bondposition.tex.

ORE describes the dual role as follows:

A bond position can be used both as a stand alone trade type (TradeType: BondPosition) or as a trade component (BondBasketData) used within the TotalReturnSwap (Generic TRS) trade type.

Source: ORE User Guide, Products catalogue, bondposition.tex.

A bond position is a list of bonds with weights. It lets a trade hold several bonds as one position. The same block also builds the asset side of a total return swap on a bond basket.

The position is set up using a BondBasketData block. Quantity is the number of units of the weighted basket held. Identifier is optional: the underlying data can be retrieved from reference data through it, when it is not given in the trade itself. Underlying is optional for the same reason: when the basket lives in reference data, the underlying data is populated from there. Each Underlying block carries a Type, a Name, an IdentifierType, a Weight and an optional BidAskAdjustment. Only underlyings of type Bond are allowed.

The weighted basket price is:

Basket-Price = Quantity x sum_i Weight_i x B_i x FX_i

where B_i is the price of the i-th bond in the basket. FX_i is the FX spot converting from the currency of the i-th bond to the return currency when the position sits in a total return swap, and to the currency of the first bond in the basket otherwise.

• The price of each bond in the basket.
• The weights of the basket and the quantity.
• The FX rates into the return currency.
• The credit of each issuer.

The position is a linear claim on the basket, so each bond price moves the value by its weight.

A bond position is a static holding with no cash flows of its own. Its value tracks the bonds as they age toward maturity. As a trade component inside a total return swap, it provides the asset leg whose total return is swapped against funding.

A bond position bundles several bonds into one tradable unit. It is the natural asset leg of a bond total return swap, where the return of the basket is paid out. In ORE Studio a customer books bond positions to value them and run sensitivities on the ORE engine.

ORE's catalogue shows a basket of two US bonds, half each, with small bid-ask adjustments:

<Trade id="BondPosition">
  <TradeType>BondPosition</TradeType>
  <Envelope>...</Envelope>
  <BondBasketData>
    <Quantity>1000</Quantity>
    <Identifier>ISIN:GB00B4KT9Q30</Identifier>
    <Underlying>
      <Type>Bond</Type>
      <Name>US69007TAB08</Name>
      <IdentifierType>ISIN</IdentifierType>
      <Weight>0.5</Weight>
      <BidAskAdjustment>-0.0025</BidAskAdjustment>
    </Underlying>
    <Underlying>
      <Type>Bond</Type>
      <Name>US750236AW16</Name>
      <IdentifierType>ISIN</IdentifierType>
      <Weight>0.5</Weight>
      <BidAskAdjustment>-0.005</BidAskAdjustment>
    </Underlying>
  </BondBasketData>
</Trade>

Source: ORE User Guide, Products catalogue, bondposition.tex, listing Bond position data.