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4

It's an interesting question. The fundamentally devout macro wannabe-strategist within cries out for a long-term growth/inflation expectation narrative. However, the cynical realist within reminds that although the market does make long-term predictions thus because it has to create prices then, there is no latent consensus that the world will really look so ...


4

Suppose 40yr bond and 30yr bond have the same yield. It is a mathematical fact as @attack68 has pointed out, that the convexity of the 40yr is greater than the convexity of the 30yr bond. So consider the following strategy ; long the 40 yr bond and short the 30yr bond with the same dv01. Then every time the market moves, you make money (get longer when ...


4

I would not say that this is universally acknowledged but here is my view: Instead of considering par rates, i.e. 10Y and 20Y, consider forward rates, such as 10y and 10y10y. The useful difference here is that forwards do not 'overlap' and therefore incorporate aspects of each other into the price. A 20Y is >50% directly dependent upon the 10Y price for ...


3

A plethora of instruments, a menagerie of curves Different instruments are traded in different ways, and relate to a collection of curves. Floating rate instruments depend on some index in order to calculate the cashflows, and so trading instruments which depend on different indices is implicitly trading the expectations of those indices in the future. Fed ...


2

Which swap curve are you trying to interpolate? And what swap are you trying to price? The 60d to 1y60d swap (1y long, starting at 60d), or now to 1y60d (not a usual length)? Really by interpolating the swap rates, easy though it seems, you are implicitly building a curve of forward rates. You are also ignoring the structure of the market where the fixing ...


1

The 30yr and greater is really a product for insurance companies and sovereigns. Insurance companies dominate the swap and futures market there and are the biggest real money players with hedge funds and dealers typically taking the other side of those trades. This is especially the case in swaptions and exotic structures out there as well. Equity returns ...


1

It boils down to what the quote represents. Let's ignore the swap points for now, and analyse what the bid forward price represent - the price at which the market maker buys the base currency forward. So the bid price will result in the market maker receiving the dollars and paying the yen at the far date. How would the market maker hedge this position? It ...


1

You can calculate the forward starting rates by hand in Excel using the relationship of spot and forward rates. Ignoring any daycount intricacies, we can say that: $$(1 + r_{2y})^2 = (1 + r_{1y}) * (1 + r_{1y1y})$$ $$r_{1y1y} = \frac{(1 + r_{2y})^2}{1 + r_{1y}} - 1$$ There are plenty of posts on this board that give you more detailed examples and ...


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