Floating-rate Treasury notes

I have had no time to write lately, but I really want to change that, starting today.

What’s that? Something about Europe? Enh, too complicated. I need to ease my way back into blogging with something simple, like explaining why I think two Bloomberg writers and one Duke University Finance Professor are confused.

Around a [...]

Lowered Expectations, part 3

Hey, I did not say which Wednesday… But I do want to finish this up before the Fed embarks on their new M.A.D. policy (Mutually Assured Devaluation).

Let me go back to my original example, supposing I give you a lottery ticket that says: “Nemo will flip a fair coin tomorrow. He will pay $1 [...]

Lowered Expectations, part 2

When is a fixed payment not a fixed payment?

When it is in nominal terms.

Suppose you and I enter into an inflation swap contract where you offer to pay me $1.10 five years from now, while I offer to pay you CPIthen / CPInow dollars. It is true that one of us is offering a fixed [...]

Lowered Expectations, part 1

I have a puzzle for you.

Last week, Prof. Krugman linked to a post of mine from last summer on inflation swaps. This reminded me of a mistake I made that I have been meaning to correct for some time.

I wrote:

…by examining the market rate for inflation swaps (“y”, in the notation above), [...]

No, Mr. Bond, I expect you to die

I have added some new links to the sidebar so we can all watch the cascade of Eurozone defaults with our own eyes. Well, until the adults step in and put a stop to it, anyway. (RSS readers will have to click through to see the sidebar, of course.)

GGBs are Greek Government Bonds.

OTs [...]

Why negative swap spreads are maybe not so surprising

Sure, the inverted 10-year swap spread is gone, and Goldman Sachs thinks it is not coming back.

But the inversion remains in the 30-year spread, which is around -20bps as I write. And that has persisted for most of the past couple of years, so there is still a mystery to explain.

Last time, I [...]

Why negative swap spreads are surprising

In some ways, the “Bond Crash/Course” was little more than my personal attempt to learn enough to understand this question. I am not quite there, yet, but I am a lot closer than when I started.

As I write, the 10-year swap spread remains inverted, albeit only slightly. Yesterday, the 7-year briefly joined it.

Let [...]

A yen for understanding

Let’s see if I can make sense of Jansen’s penultimate post today.

Exotic option hedging contributed to the flattening of the Treasury curve today.

Recall that a “flattening” yield curve means that the spread between yields on shorter maturities and longer maturities declines. Like in this picture from Bloomberg (orange = yesterday, green = today):

That may [...]

Bond crash/course: Inflation swaps

As you may have noticed, in the past few weeks stocks are down, gold is down, oil is down… And Treasury yields are also down. (So much for my “bond crash”.) It sure smells like the market is pricing in a little deflation or disinflation or something. But how can we be sure? I mean, [...]

Bond crash/course: Swaps references

People stop me on the street all the time and say, “Hey there, Nemo. Where do you get all this stuff? Did you read a book or something?” And I say no, of course not, who reads books anymore? Besides, you do not have to read anything to state the obvious.

I read (or attempted [...]