16

A simple correlation/beta analysis of the Banks-relative-to-market versus interest rates or bond yields will tell you that the effect is real enough, whether in Europe, the US, or Japan... Likewise, a simple multiple regression of bank equity to the equity market and to swap rates will also suggest that the rates beta is almost as significant, sometimes more ...


5

A 3 month libor curve is a set of forward rates for 3 month libor. Thus, the curve begins at where 3 month libor is today , and takes different values for each possible forward observation date. Loosely speaking, this curve represents where the market thinks 3 month libor will set in the future. The analogous statement holds for 1mo libor , 6 month ...


5

It looks like it's referring to Wu and Xia (2016) shadow rates. Some more media coverage is here. The core idea of a shadow rate goes back at least to Fischer Black. Black (1995) Fischer Black's idea was that the nominal short rate $r_t$ is an option. One can either: Invest and earn the real shadow rate $s_t$, which is based on the investment opportunity ...


5

Simplified: Banks usually live of the margin between what interest people pay fro credit vs. what interest people get for leaving their money with the bank. The higher the difference between the two, the more money is left for the bank. Before the last crisis banks increased this margin by high risk investments, which promised higher interest rates. Several ...


3

The central bank does not decide the rates for government bond, it can only influence the rates. The market decides the rates (unless the treasury wants to issue at a huge discount or premium) it needs to comply with the markets expected rate. As CB buys government bonds, the number of freely floating bonds is reduced and due to the law of supply and demand ...


3

The lesson learned from the CHF episode is that the central bank eventually gets nervous about the losses they are likely to incur. Theoretically any central bank can print its own currency and sell it into the open market without limit, but if the currency eventually appreciates, there will be a massive loss. The capitulation generally occurs when the ...


3

There are a lot of intricacies involved, and I'll focus on high-level stuff. Let's go back to the basics. If we have the 3-month LIBOR rate and the 6-month LIBOR rate, can we calculate the 3-month forward 3-month LIBOR rate? Before the financial crisis, the answer was typically assumed to be yes. The math is simple: $$\left(1 + \frac{\text{3-month LIBOR}}{...


2

The Fed (under the Yellen regime) has always stated that any adjustments to the Federal Funds rate are "data dependent." These data points (CPI inflation, inflation expectations, non-farm payrolls, GDP, et cetera) are only available on a monthly or quarterly basis, (depending on the print) which would cause them to have to make an uninformed decision if the ...


2

The other thing about the CHF peg was the central bank gave no indication and if I remember rightly in the previous meeting said they'd continue with the peg. Then one day, without notice, there's no central bank bid (of 1,000,000,000) on EBS. (Most bids on EBS are only 1,000,000 so that's an unusual size) Whereas here the CZK central bank is giving notice ...


2

There are different schools of thoughts on this topic, but as @dm63 pointed out, interest rate approaching zero is not a reason for QE to lose effectiveness; it is in fact a reason for conducting QE in the first place. My preferred narrative goes roughly as follows: In a depressionary environment, investors sell assets and move money into cash. This cuts ...


2

I don't agree with the statement. It's precisely after short term interest rates approach zero that central banks turn to QE as an additional technique to boost the economy.


2

Libor is a term rate (eg 3 month libor is the rate at which banks would lend to each other for 3 months). Fed funds (or Sonia in the UK) is an overnight rate. That's the difference.


2

This video is not explaining how banks borrow from the Fed. It is explaining the role of banks as an intermediary between the Fed and the Home Loan Banks. Thus, the Home Loan Banks have cash and would like to deposit it at the Fed, but they can't because they are not eligible for the Fed deposit facility. So they deposit it with a bank, which turns around ...


2

Yes of course. They pay billions in interest to the central bank (ECB) and that consumes most of the profit they make on lending it out. European banks in particular are struggling to turn profitable.


2

In general, the Fed Funds rate is below the repo rate. That is because of a few things: With the introduction of interest on excess overnight reserves (IEOR) banks can park their money at the Fed and get paid for them. They have less of a need to move their money. This means that banks with idle reserves no longer need to go to the Fed Funds market to ...


1

I agree with you- if IOER were set to zero, any bank that had excess reserves would prefer to loan them in the Fed funds market at a rate above zero, if that existed. Perhaps a small positive Fed funds rate could exist, but not significantly above zero. There is a genuine question as to what "excess" means nowadays. Traditionally it meant reserves in ...


1

Overnight repo rates have indeed tended to be slightly higher than Fed funds rates in the last few months. When this difference is small (say 5-10bp) I would say that most banks that have access to both markets would regard this as too small to exploit (not worth deploying scarce balance sheet for that small a return). However there have been some ...


1

The ECB can get you Eurosystem-wide aggregates, but remember that these are just reported by the ECB by the national central banks, who actually regulate the banks. The rules and reporting standards are Europe-wide; but this is nationally operated. And the precise figures for every individual bank are commercially-sensitive data. I'm not sure they are a ...


1

The reason banks are asked rather than the rate being observed is that transactions do not take place for all of those maturities, at least not with enough banks to make it accurate at any given time. So the best that can be done is ask them at what cost they can borrow and surely each has a bias to either overstate or understate depending on their market ...


1

If i have a long term goal of say 10 mil and i contribute 10K everymonth. say, i need to contribute for 40 years, which would be 4.8 Mil My contribution + (Compounded) interest is 5.2 Mil. I reach my target and i am a happy man. (Some random interest rate :) ) With Zero interest rates, I need to contribute all 10 Mil from my pocket. i am not making any ...


1

How can QE lower interest rates? Say, if a market has 1000 USD with only 10 citizens in it. Say, everyone is making 100 USD and spending the same. The bank will have 1000 USD as everyone pays using bank. With QE, Fed will plug in say 200 more USD into this market. Now the total cash in market is 1200 USD with 10 players. Now, everyone can make slightly ...


1

Using the US as an example, the Fed closely controls the Federal funds rate, which is an overnight rate (not the yield on Government bonds). Usually therefore, the yield on government bonds is determined by supply and demand in the marketplace. However when QE is occurring, the Fed becomes a source of demand for these bonds and hence influences their ...


Only top voted, non community-wiki answers of a minimum length are eligible