Chris and Pete have their second discussion on Interest Rate Futures, most specifically the Eurodollar. They talk about the Dollar Value of a 1-Basis-Point change in yield, or DV01, of an underlying.
The larger the DV01, the greater the swings in price for a Treasury Note or Bond given any market-moving sentiment; also, DV01 increases as you go further out in duration. We use DV01 as a tool to hedge pairs trades along the Treasury and Eurodollar curve.
By comparing DV01s of the two legs in a pairs trade, a trader can derive a DV01-neutral spread. DV01-neutral spreads allow us to trade the curve without having a directional assumption.
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