FV HEDGE ACCOUNTIG - Par Asset Swap

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stefanofur
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Joined: 02 Sep 2019, 17:35

FV HEDGE ACCOUNTIG - Par Asset Swap

Post by stefanofur »

Hi all
What is the correct accounting under IFRS9 Fair Value Hedging for a Par par Asset Swap?
For example a bond (BTP) hedged with a Swap fix vs euribor 6m+ spread.
In particular when there is an upfront paid (bond price below 100) or received (bond price above 100),
Is it correct to amortize this upfront in order to offset the amortizing of the bond hedged?
In par par swap you have -in fact- price tel quel = 100 , par
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Marek Muc
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Re: FV HEDGE ACCOUNTIG - Par Asset Swap

Post by Marek Muc »

Hi, I don’t understand your question. Please illustrate it with a numeric example
stefanofur
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Joined: 02 Sep 2019, 17:35

Re: FV HEDGE ACCOUNTIG - Par Asset Swap

Post by stefanofur »

---Par par asset swap---
I buy BTP fixed rate @ 103 (in HTC) and I close a Par swap I pay fixed rate (BTP coupon) and I receive euribor 6m + spread
I receive an upfront of 3 (derivative PV=-3 at inception) - in par swap pay leg you pay nominal rate (tel quel = 100) of underlying asset

----FV Heding accounting (end of month):
Swap (hedging item): delta FV = FV end of month - (-3)
BTP bond (hedged item): delta FV - delta FV hedged risk (interest rate risk), but I need to amortize upfront of 3 in order to offset amortizing cost of bond (@103)

Conclusion: Pay Leg give back cash flows of the bond and Receive Leg is floating rate (euribor+spread)= synthetic CCT (Floting Rate Note) to hedge interest rate risk - duration risk.
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