Questions tagged [yield-curve]

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2
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2answers
88 views

Bond strategy in rising rate environment

During a period of rising interest rates, it makes sense for investors to either swap out their longer term bonds for shorter ones, or simply invest in shorter maturity bonds in order to reduce ...
1
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1answer
46 views

If 10s20s steepener have equal DV01 weighting on each swap then why does convexity play a role in MtM

Receiver Swap 10yrs Notional: 1,000,000 DV01: +1,300 Tenor: 10yrs Rate: 4% Payer Swap 20yrs Notional: 500,000 DV01: -1,300 Tenor: 20yrs Rate: 5% Looking at this fictitious example, I want to ...
9
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1answer
2k views

Shape and geometry of the yield curve

Let the initial yield curve $T\mapsto y(0,T)$ be given for a term structure family of bonds $B(0,T)$ having different maturities. I am trying to figure out the geometric properties of the yield curve. ...
4
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1answer
130 views

Creating yield curve from exchange-listed products only?

For use in subset of my thesis, I’ve been given some exchange market data for several exchange-listed products, including Eurodollar rate futures as well US treasury futures and Fed Funds futures. I ...
2
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1answer
53 views

What does 5 year OIS actually mean?

I am aware that OIS is the new reference/risk-free rate for collateralized cashflows. OIS is by definition an overnight rate (annualized, I assume). So once I have constructed my OIS yield curve, what ...
3
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1answer
76 views

Investor rationale behind inverted yield curve

I just had a question regarding investors/markets rationale behind the cause of the yield curve. Assuming that investors believe that rates will be lower in the future and are pessimistic about the ...
5
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1answer
166 views

No-arbitrage in term-structure models

I am a bit confused about what the implication of "no-arbitrage" in popular term struchture models (such as affine term struchtre models or HJM models) are? Is it solely a restriction on the cross-...
1
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2answers
68 views

Stress testing fixed income Yield curve with Nelson Siegel

I am attempting to stress test the Zero coupon Yield curve using The Nelson Siegel model as described in the following papers : Generating Yield Curve Stress-Scenarios Representative Yield Curve ...
0
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2answers
81 views

Which curve does the interest rate risk fall in?

For example, Australian government issues a bond denominated in USD currency? Which curve does the interest rate risk fall in? Australian Gov Curve or USD Gov Curve?
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2answers
105 views

Inverted Yield Curve [closed]

In an article of FT today, Matthew Klein writes, "The yield curve represents the cost of borrowing over different amounts of time. Lenders generally prefer getting their money back sooner rather than ...
0
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1answer
100 views

Yield Curve Flattening Trade

Relatively simple question, but came upon it in class and have not been able to come up with an answer: The two-year bond yield is equal to 4% while the 10-year one is equal to 10%. You want to put ...
2
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1answer
99 views

Recommended Instruments (and sources) for Constructing Money Market Yield Curves

What instruments are the current industry recommendations for constructing money-market yield curves in some major currencies? The switch after the crisis to multi-curve methods is well documented on ...
2
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1answer
267 views

Why we should specify the evaluation date when using Quantlib yield curve? And why updating the evaluation Date is time consuming

I was runing some tests using the yield curve structure in quantlib mainly: PiecewiseYieldCurve It seems that I have to fix the evaluation date using such a line : Settings::instance().evaluationDate(...
1
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1answer
89 views

daycount of the yield curve

Complete characterization of an interest rate requires a few elements: day count compounding frequency the rate itself start date and end date That said, I notice that day counts are never displayed ...
0
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0answers
24 views

is there a specific design pattern in C# to model a yield curve into the NS model?

I successfully managed to have a nice NS model to a yield curve I am studying using R, while I am still beginner in C# I wonder if there is a specific design pattern I should follow in order to put ...
0
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0answers
147 views

Mark-to-market cross-currency basis swap valuation

I'm looking to replicate the EUR vs USD cross-currency basis curve that Bloomberg outputs (EUR.OIS collateralized in USD). I understand that Bloomberg is currently using the mark-to-market ...
1
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0answers
53 views

Matching the yield on a bond with the zeroRate on a curve in Quantlib

I am using QuantLib to generate a US Treasury curve from 1y, 3y, 5y, and 10y yield quotes. However, after building the curve and running zeroRate on it, it ...
2
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1answer
136 views

Par Yield, Bond Yield and Zero Rate

In the Hull's book, chapter 4.4, it says : The par yield for a certain bond maturity is the coupon rate that causes the bond price to equal it's par value. Then for this question (4.18) : “...
0
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0answers
36 views

Deriving the series for federal funds rate expectations using federal funds futures

I am trying to derive the monthly series from 2000-2019 of the expectations of federal funds rate based on federal funds futures. How should I proceed? Where to look? Is it possible?
3
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1answer
105 views

Estimating a Yield Curve in a country without Bond Stripping

I am currently working under estimating a Yield Curve. From my understanding common procedures to construct a yield Curve like Nelson Siegel have the input of a series of different zero rates and ...
2
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1answer
97 views

Convexity in interest rate curve bootstrapping

Whether the bootstrapping is a multicurve one or not, one can use futures quotes. One link these quotes to corresponding (synthetic) forwards (that can be expressed as known functions of zero-coupons) ...
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0answers
27 views

Retrieve SYC from Par yields

Currently studying about fixed income and the construction of the Spot yield curve, but I do not know whether my intuition is right. Suppose we have a firm that has traded Bond for different ...
0
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1answer
153 views

stress testing zero coupon yield curve

i'm currently trying to stress test the zero coupon yield curve using daily observations from 2003 to 2019. Each Zero coupon yield curve originate from an actuarial curve with 37 tenors that range ...
3
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1answer
152 views

What's Hedge Curve Template

what's a Hedge Curve Template (HCT)? How does it help value a bond? It appears to me it normally is used together with another curve where x,y-axis being maturity dates and discount factors ...
5
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2answers
2k views

What does instantaneous forward mean?

Could you please help me to understand meaning of instantaneous forward rate? I mean economic interpretation at basic level. What is it used for? How can i derive it from zero rate/price? Thanks
0
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0answers
128 views

PCA predicted yield curve moves do not match (closely) realized yield curve moves

I have a need to set-up a methodology to decompose the x-day yield curve moves into its underlying (3) PCAs. Specifically, for an example, to generate the 1-day moves in the EUR-swap yield curve; ...
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0answers
66 views

Duration and yield

I have some basic questions about mainly duration and yield. 1) Almost no-one defines what yield they are talking about when talking about duration and discount rate, I've seen some talk about ...
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3answers
2k views

Deriving Interest Rates

I am trying to teach myself about interest rate swaps, how they are priced, etc... Easy enough - just comparing cash flows of fixed and floating rate bonds. However, what I'm struggling with is how ...
0
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1answer
30 views

Raw interpolation when the desired term is out of the know originals

I was reading this paper regarding the yield curve construction and was programming the Raw Interpolation algorithm (page 7 equation 6) however I was wondering how to use the formula when the desired ...
1
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1answer
81 views

Concentration risk in Rates

What are some good ways to assess the concentration risk for a rates curve or by currency when volumes traded by instrument are not easily available? For ex, if for some currencies, the PV01 at ...
0
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0answers
82 views

QuantLib FuturesRateHelper how do I input Future type = 'ASX', the 'IMM' date check is causing Runtime Error

How do I input Future type = 'ASX', the 'IMM' date check is causing Runtime Error future_maturities 1 2019-06-14 2 2019-09-13 3 2019-12-13 4 2020-03-13 5 2020-06-12 6 2020-09-11 ...
3
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3answers
232 views

PCA for Risk bucketing

I'm working on a project to justify the use the certain tenors (2y, 5y, 10y, 30y) for risk bucketing. I'm a little stuck after calculating the principal components. Just to describe my approach- a) ...
3
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2answers
63 views

Cash vs Deposit Rates

When constructing a yield curve for derivatives purposes, what is the difference between cash and deposits rates?
2
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0answers
160 views

How to interpret DV01 in terms of PCA equivalent?

I have computed the PCs for daily changes in the UST yield curve over the last 5 years using the covariance matrix and can explain 94% of the variance using the first two components, which is good ...
0
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0answers
93 views

Curve Building + Swap Pricing [duplicate]

Assume Swap means a USD Swap with standard conventions (semi-annual fixed payments and quarterly floating payments, etc).
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0answers
299 views

Interview question on interest rate spread trade

Consider this interview question: Tell me how you'd construct a risk neutral cross country trade on the 2 year – 10 year interest rate spread in Germany and the U.S. What does "risk neutral" mean ...
2
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0answers
89 views

Yield Curve Trading Strategy Explaining Books

Recently I really enjoyed being here while getting great recommendations. Would like to thank you all. Could you please recommend some books/papers on trading strategies, lets say yield curve ...
3
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3answers
151 views

What's the logic behind 3-10 UST yield inversion predicting recession?

Is there causality, behavioral or logical explanation behind this indicator or is it just purely an observation based on correlation? My guess is that there are existing derivatives with clauses that ...
0
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1answer
94 views

Spreadlock derivatives

I would like to price a spreadlock forward swap and a spreadlock swaption but I don't find in the web any research article. Would you please provide me with some freely accessible papers on the web ? ...
2
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0answers
32 views

Bond Index Return from Yield Curve Data [duplicate]

I am trying to compare fund returns with benchmark returns. I have some yield curve data (some of them calculated by Bloomberg) but not bond price or return data. Is there any way to get bond returns ...
2
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1answer
256 views

Duration split: treasury curve vs spread duration

I am looking at corporate bond (FR0013367620) in Bloomberg for which I have these values: DUR_ADJ_MID (modified duration performed using the yield to worst): 6.649 DUR_ADJ_OAS_MID (security's price/...
14
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2answers
682 views

Implied term structure from risky discount curve: does it make sense?

We know that, taken every discount curve, it's possible to calculate its forward rates according to our tenor preferences. We know also that it's actually possible to extract an implied term ...
2
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1answer
162 views

Construct a butterfly interest rate portfolio to eliminate PCA exposures

I have data from 2012 to 2016 for interest rates whose term range from 2 month to 30 years, a total of 10 Principal components can be calculated. Then I want to construct a portfolio, $$WFLY = w_1 *5Y ...
6
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3answers
1k views

Why 10-year versus 2-year spread?

I occasionally see the 10y-2y spread referenced as a recession predictor. See, e.g., https://seekingalpha.com/article/4201787-current-slope-yield-curve-tell-us Why 10y minus 2y? Specifically, why use ...
2
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2answers
285 views

Reconstruct yield curve from principal components

I am currently building a model which aim is to model shocks to the yield curve (i.e. 25bps hike in the short rate). Currently I am looking at a swap curve from which I derive the PCs. Assessing the ...
5
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1answer
1k views

How does the 2-factor Hull White model propagate the forward rates curve?

I've been trying to get a grasp on some of the basics of interest rate modeling, and am looking to simulate rates using the 2 factor Hull White model, which I am aware offers a more realistic model of ...
0
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1answer
111 views

Relation Between Yield Curve, First Order Derivative of YC and Forward Rate

I'm reading the book, "Derivatives Analytics with Python" by Yves Hilpisch. In an application of calibration of CIR85 process for the short-term interest rate. I found some codes which can be ...
-1
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1answer
625 views

Swap Curve and Forward Libor Rates

How does the (interest rate) swap curve incorporate forward libor expectations?
1
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2answers
606 views

Principal component analysis for yield curve

I have Treasury yield data across 11 maturities for past 1 year. I have used a code in MATLAB for PCA on change in yield curve. Now, I have covariance matrix of daily/monthly yield curve changes, ...
1
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1answer
302 views

ESTER replacement for EONIA/EURIBOR

Does anybody know what impact the replacement of EONIA with ESTER ( Euro Short TErm Rate ) will have on discounting existing or new derivatives once EONIA will be restricted as of Jan 2020? I'm ...