T-lock | Glossary | Derivatives Compass

A T-lock (Treasury lock) is a transaction in which the difference between the US Treasury yield on a set future date and a yield fixed today is settled in cash. It can be used before a bond issue to prepare for movements in Treasury yields.

The payment is the yield difference in basis points, multiplied by the DV01 of the reference US Treasury and the notional amount¹. If the yield on the calculation date is above the locked-in yield, the seller pays the buyer. If it is below, the buyer pays the seller¹.

Consider a hypothetical T-lock with a notional amount of USD 100 million, a locked-in yield of 4.00%, and a DV01 of USD 80,000 per basis point. If the yield on the calculation date is 4.50%, the buyer receives USD 4 million. If it is 3.50%, the buyer pays USD 4 million.

Notes

Standard Chartered Bank, "US Treasury Lock" (draft confirmation), pp. 3–4, "Dollar Value of an 0.01% Change ("DVBP")", "Settlement Amount Payment", and "Settlement Amount". ↩ ↩²

Notes

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