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by secondmoment
September 2nd, 2015, 12:23 am
Forum: Economics Forum
Topic: Central Bank benchmark interest rate and FX rate
Replies: 4
Views: 11576

Central Bank benchmark interest rate and FX rate

<t>Hi,While generally true, the overall environment can alter the effects considerably. For example, this year when the Russian central bank or various other emerging market countries have raised rates, the currency has depreciated. If the interest rate is being hiked in order to prevent capital out...
by secondmoment
April 16th, 2012, 4:58 pm
Forum: General Forum
Topic: Options on Curve Flatteners
Replies: 10
Views: 15551

Options on Curve Flatteners

<t>A couple different points here. To do conditional trades you can sell a call on one sector and buy a call on another sector (sell call swaption (receiver) on 2y swaps and buy call swaption (receiver) on 10y swaps) to take a view on the curve conditional on underlying movement. If you do receivers...
by secondmoment
February 7th, 2012, 2:58 am
Forum: General Forum
Topic: TIPS ASW
Replies: 4
Views: 17063

TIPS ASW

<t>TIPS asset swaps are just the TIPS bond version of regular asset swaps. You asset swap the TIPS bond versus an inflation swap. Simplifying it alot (yes, I realize on Wilmott forums that can be dangerous), it comes out to TIPS yield - inflation swap yield. The drivers of this spread first are comm...
by secondmoment
January 5th, 2012, 12:55 pm
Forum: General Forum
Topic: gold interest rates
Replies: 13
Views: 17497

gold interest rates

<r>Here are some decent articles (a bit dated) on dynamics of the gold rate curve..<URL url="http://ftalphaville.ft.com/blog/2011/09/14/677021/why-gold-forward-rate-inversion-is-important/this"><LINK_TEXT text="http://ftalphaville.ft.com/blog/2011/09 ... rtant/this">http://ftalphaville.ft.com/blog/2...
by secondmoment
November 8th, 2011, 12:40 am
Forum: General Forum
Topic: Are inflation-linked bonds a hedge against inflation?
Replies: 11
Views: 20781

Are inflation-linked bonds a hedge against inflation?

<t>With regards to inflation swaps versus TIPS, inflation swaps have counterparty risk of bank while TIPS is of US govt. Also, though generally not worth much, TIPS provides a floor against negative inflation (floor is 100 on principal at maturity), while inflation swaps do not tend to have this flo...
by secondmoment
November 8th, 2011, 12:30 am
Forum: General Forum
Topic: Brent-WTI Spread
Replies: 24
Views: 24184

Brent-WTI Spread

<t>the spread is a function of both supply differences as well as logistics. While brent supply is shrinking due to field depletion, supply of oil in mid-continent US is rising due to canadian exports and growth of shale oil in north dakota etc. There are also issues with other sources of oil to eur...
by secondmoment
September 24th, 2011, 2:07 am
Forum: Student Forum
Topic: Why a yield curve is concave?
Replies: 15
Views: 22475

Why a yield curve is concave?

<t>Some of the concavity also stems from structural demand for long term fixed income assets (20Y+) such as from pension funds and/or insurance companies. The effect of this structural demand varies considerably by country depending on regulations and institutional preferences, but in most cases thi...
by secondmoment
August 8th, 2011, 7:41 pm
Forum: General Forum
Topic: USD swap spreads under a new Credit Regime
Replies: 4
Views: 19845

USD swap spreads under a new Credit Regime

<t>USD swap spreads will likely widen (as they have been for the last few days) partly due to the flight to quality into Treasuries as well as some fears regarding bank capital cushions (esp BAC) and general risk off sentiment. If US Treasuries downgraded, banks are obv. not immune to the effects si...
by secondmoment
July 7th, 2011, 7:20 pm
Forum: Trading Forum
Topic: New book on rates...
Replies: 2
Views: 21377

New book on rates...

Thank you! I look forward to hearing your comments and/or any mistakes you find
by secondmoment
June 29th, 2011, 1:42 am
Forum: Trading Forum
Topic: Anybody please kindly explain the logic behind this MS trade?
Replies: 5
Views: 21528

Anybody please kindly explain the logic behind this MS trade?

<r>Hi Mizhael,So this trade is a combination of two different concepts - a curve trade and a breakeven trade with TIPS. For the breakeven part, we buy/sell TIPS and sell/buy Treasuries - the difference in yield is the amount of inflation needed to break even on the trade (hence the term breakeven). ...
by secondmoment
June 25th, 2011, 1:24 am
Forum: Student Forum
Topic: market direction or expsure in 1m vs 3m libor swaps
Replies: 6
Views: 20661

market direction or expsure in 1m vs 3m libor swaps

<t>Hi Drona,Here you have to clarify which "market" you are referring to. In the rates world, 'long' and 'short' are not as simple as in equities - with a 1m vs. 3m libor basis swap, your duration, i.e. underlying rate exposure is very small since both rates are floating. If payment is made every 3m...
by secondmoment
June 8th, 2011, 6:23 pm
Forum: Economics Forum
Topic: Questions about unemployment, inflation and funding
Replies: 2
Views: 22283

Questions about unemployment, inflation and funding

<r>Partial answers to your questions (these questions rather complex in nature and hard to do one-liners):1. Yes, accomodative monetary policy does not result in inflation so long as the excess reserves created sit in the central bank itself. The Fed's liquidity programs including QE have not led to...
by secondmoment
June 8th, 2011, 1:21 pm
Forum: Student Forum
Topic: Coupon Payment Dates in Basis Swap Legs
Replies: 3
Views: 21207

Coupon Payment Dates in Basis Swap Legs

<t>In general, with relatively illiquid basis swaps such as 1m vs. 3m, there tends to be a lack of standard terms in the market. That said, I think in general the payments were matched quarterly. In a fed funds basis swap for example, (fed funds floating vs. 3m libor), the payments were matched quar...
by secondmoment
May 31st, 2011, 12:36 pm
Forum: Book And Research Paper Forum
Topic: New Book - Interest Rate Markets: A practical approach to fixed income
Replies: 4
Views: 25177

New Book - Interest Rate Markets: A practical approach to fixed income

<t>Many thanks gc for your feedback! I hope the second half of the book stays good to read as well Yes, there are definitely no market secrets here or any super algorithms to get the reader rich..sadly! After working for a number of years in fixed income, I suppose I have become a bit skeptical of a...
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