introduction to the interest rate complex · 2014. 5. 22. · most active short -term interest rate...

Introduction to the Interest Rate Complex

May 22, 2014

Presented by Pete Mulmat

© 2014 CME Group. All rights reserved.

Disclaimer

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Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All references to options refer to options on futures.

Swaps trading is not suitable for all investors, involves the risk of loss and should only be undertaken by investors who are ECPs within the meaning of section 1(a)12 of the Commodity Exchange Act. Swaps are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade.

Any research views expressed are those of the individual author and do not necessarily represent the views of the CME Group or its affiliates.

CME Group is a trademark of CME Group Inc. The Globe Logo, CME, Globex and Chicago Mercantile Exchange are trademarks of Chicago Mercantile Exchange Inc. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are registered trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc.All other trademarks are the property of their respective owners.

The information within this presentation has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for any errors or omissions. Additionally, all examples in this presentation are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience.

All matters pertaining to rules and specifications herein are made subject to and are superseded by official Exchange rules. Current rules should be consulted in all cases concerning contract specifications.

Copyright © 2014 CME Group. All rights reserved.


• Fed Funds / Eurodollar Futures

• US Treasury Futures

• Resources

• Glossary of Terms

3

Agenda

© 2014 CME Group. All rights reserved. 4

Hedging and Speculating

We bring those who want to manage risk together with those who want to profit from accepting that risk.


• A “normal” yield curve is usually upward sloping with rates rising over time. This reflects investor expectations of economic growth and possible inflationary pressure.

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U.S. Financial Markets

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Maturity

Normal Yield Curve

Yield

“the relation between the interest rate and the time to maturity of the debt…” - Wikipedia


• An inverted, or downward sloping yield curve occurs when short-term yields (rates) exceed long term yields. This was the case in the early 1980’s when the Fed raised short-term rates to battle high inflation

6

U.S. Financial Markets

“the relation between the interest rate and the time to maturity of the debt…” - Wikipedia

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Inverted Yield Curve

3-mo 6-mo 1-yr 2-yr 5-yr 10-yr 30-yr


CME Group Interest Rate Products

0%

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2-Yr

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5-Yr

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Eurodollars 0-10 Years

Classic T-Bond 15-25 Yrs

Ultra Bond 25-30

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10-Yr T-Note

5-Yr T-Note

3-Yr T-Note

2-Yr T-Note

30-Yr Swap 10-Yr

Swap

2-Yr Swap

5-Yr Swap

30-Day Fed Funds

Blanketing the Yield Curve CME Group interest rate products include Eurodollars, Treasury, Swap & Fed Fund based products


Short Term Interest Rate Products

Fed Fund Futures

• Monthly contract based on 30-day average Fed Funds Rate • Contracts extend out 36 consecutive months

Eurodollar Futures

• Quarterly and serial contracts based on 3-month LIBOR rate • Quarterly contracts extend out 10 years

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CME Group STIRs

Options are available on these contracts


What is an IMM quote?

• Developed by IMM Division of CME in early 1980’s converts a yield to a price

• Price moves inversely to yield, rates go up-price goes down

• Designed to allow financial instruments that traditionally traded in yield to trade as a price, more like commodities


30-Day Fed Fund Futures Contract Specifications

Unit $5 million notional value

Cash Settlement Cash settled to average daily Fed Funds overnight (O/N) as reported by Federal Reserve Bank of New York

Quote In terms of "IMM index" or 100 less yield, e.g., yield of 0.35% quoted as 99.65

Tick Size Nearby month quoted to ¼ basis point (0.0025) = $10.4175 rounded up to nearest cent; all other contract months quoted to ½ basis point (0.005) = $20.835

Months First 36 consecutive contract months

Hours of Trade Floor trading 7:20am CT -2:00pm CT Monday-Friday. CME Globex® trading platform Mondays - Thursdays from 5:30pm CT - 4:00pm CT Sunday - Friday

Final Trading Day Last business day of delivery month when trading closes at 4:00 pm

10

Fed Fund Futures


• Prices quoted as 100 – Yield, e.g., quote of 99.64 implies yield of 0.36% (= 100.00 – 99.64)

• One basis point (0.01%) equates to $41.67

• Minimum tick-size: One-half of one basis point (0.005), or $20.835 per contract.

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About Fed Fund Futures

30-Day Fed Fund Futures January 30, 2014

Month Settlement Yield Volume Open Interest

Jan-14 99.9275 0.0725% 353 39,438 Feb-14 99.9200 0.0800% 2,855 43,634 Mar-14 99.9100 0.0900% 3,587 30,271 Apr-14 99.9100 0.0900% 519 17,804 May-14 99.9100 0.0900% 372 14,188 Jun-14 99.9050 0.0950% 781 14,678 Jul-14 99.9050 0.0950% 958 17,038 Aug-14 99.9000 0.1000% 447 16,396 Sep-14 99.8900 0.1100% 257 10,618 Oct-14 99.8800 0.1200% 266 9,967 Nov-14 99.8700 0.1300% 478 6,929 Dec-14 99.8600 0.1400% 1,281 12,757 Jan-15 99.8450 0.1550% 1,100 10,896 Feb-15 99.8200 0.1800% 738 8,291 Mar-15 99.8000 0.2000% 426 8,510

… Dec-16 98.3250 1.675% - -

16,069 298,209


Target Fed Funds… • U.S. Fed is rather unique amongst world central banks in that it is charged with

restraining inflation and promoting economic growth

• Target Fed Funds rate is most significant monetary policy tool

• Current Fed keeping rates low, ZIRP, until signs of job creation or signs of inflation

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Fed Monetary Policy

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Targeted Fed Funds Rate Rates


• Prediction regarding future course of monetary policy implicit in Fed Fund futures prices

• Fed Fund futures listed in 36 consecutive months … facilitates matching of month with FOMC meeting

• Options on Fed Fund futures also referenced as source of information

13

Fed Funds Futures Curve

0.0000%0.2000%0.4000%0.6000%0.8000%1.0000%1.2000%1.4000%1.6000%1.8000%

Fed Funds Futures Curve as of January 30, 2014

Implied Yield


CME Group FedWatch

Access here: http://www.cmegroup.com/trading/interest-rates/fed-funds.html

http://www.cmegroup.com/trading/interest-rates/fed-funds.html


• Markets developed in London in 1950’s and 60’s.

• Represent USD denominated deposits held outside the U.S.

• London Interbank Offered Rate (LIBOR), succeeded “Prime Rate” in the late 70’s and early 80’s as the U.S. short-term interest market benchmark.

• Benchmark status for corporate funding … corporations borrow with “floating” rate plus credit spread, IRS.

• Rates administered by ICE Benchmark Administration.

15

London and the LIBOR


Most active short-term interest rate futures worldwide:

By the numbers:

Launched December 1981, market growth facilitated by interplay vs. interest rate swap (IRS) markets

2013 Average Daily Volume = 2.36 million contracts

98% of Eurodollar futures volume is electronic

16

CME Eurodollar Futures


Users and Uses

Users

Commercial & investment banks •Swap desks, money market & repo desks, Treasury desks, mortgage desks, corporate/credit desks, asset/liability management

Hedge funds and Commodity Trading Advisors (CTAs)

Proprietary traders

Asset managers

Mortgage servicers

Regional Banks

Uses

Price & hedge interest rate swap (IRS) exposures

Hedge corporate & commercial paper borrowing rates

Manage asset/liability mismatches on balance sheet

Adjust duration of fixed income portfolios

Trade shape of yield curve

Outright interest rate speculation

17

CME Group Eurodollar Futures


Eurodollar Futures Contract Specifications

Unit $1 million face value, 3-month Eurodollar Time Deposits

Cash Settlement Cash settled to ICE LIBOR 3-month Eurodollar Interbank Time Deposit Rate

Quote In terms of "IMM index" or 100 less yield, e.g., yield of 0.85% quoted as 99.15

Tick Size One-half basis point (0.005) = $12.50; except in nearby month, tick is one-quarter basis point (0.0025) =$6.25

Months March quarterly cycle of March, June, September and December, extending out 10 years (total of 40 contracts); plus 1st 4 “serial” months not in March quarterly cycle

Hours of Trade Floor trading Monday - Friday 7:20am CT - 2:00 pm CT CME Globex® Sunday - Friday 5:00pm CT - 4:00pm CT

Final Trading Day 2nd London bank business day prior to 3rd Wednesday of contract month. Trading in expiring contract closes at 11:00am London time on last trading day

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CME Eurodollar Futures


100.00 Yield

(0.8450)

Price Quote

(99.1550)

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Eurodollar Fundamentals

$1,000,000 Days/360 (90/360) 0.01%

BPV $25.00

IMM Index Quote

Basis Point Value


Outright vs. Spreads

Outright Contracts

• Years 1-10 • 40 quarterly contracts plus 4 serial contracts

Spreads • Simultaneous purchase and sale of contracts in

different months • Calendar spreads, butterflies, condors, etc.

• Spread traders provide a great deal of liquidity in the Eurodollar contracts

20

Eurodollar Fundamentals


Shifting of Eurodollar Curve

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Sell Eurodollar Futures Hedge risk of rising rates

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Hedging STIR Exposure with Eurodollars

Buy Eurodollar Futures Hedge risk of declining rates


Different risks require different solutions

• These contracts make it possible to use a wide range of trading strategies to suit a number of goals.

ADV Year-End OI

Eurodollar Futures 2,052,580 10,154,610

Eurodollar Options 110,402 7,145,550

Mid-Curves 484,263 10,184,340

• Long-dated Quarterly out 4-years

• Short-dated Quarterly & Serials out 5-years

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Options on Eurodollar Futures


• Eurodollar Options expanded from 12 to 16 quarterlies on Nov. 18, 2013

• Weekly Options added on 2 and 3-Year Mid-Curves on Nov. 18, 2013

• Expirations ranging from weekly to December 2017, close to 4 years out

24

Options on Eurodollar Futures


Free Web-based Options Analytics Tool

• Visibility into Current and Historical Volatility by Strike

• Concise Volume and Open Interest Information

• Spread Analysis and Risk Graphs

• Options Pricing Analysis

25

QuikStrike Essentials

Access here: www.cmegroup.com/quikstrike

http://www.cmegroup.com/quikstrike


U.S. Treasury Futures based Products


U.S. Treasury Futures Volume (by contract) 2004-2013


CBOT Treasury Futures Contract Details

2-Yr T-Note Futures

5-Yr T-Note Futures

10-Yr Note Futures

T-Bond Futures

Ultra T-Bond Futures

Face Amount $200,000 $100,000 $100,000 $100,000 $100,00

Deliverable Maturity 1 ¾ - 2 Years 4 1/16 – 5 ¼

Years 6 ½ - 10 Years 15 – 25 Years 25 – 30 Years

Contract Months March Quarterly Cycle: March, June, September and December

Trading Hours Open Outcry: Mon - Fri 7:20am – 2:00pm CT | Globex: Sun – Fri 5:00pm – 4:00pm CT

Last Trading and Delivery Day

Last business day of contract month; delivery may occur on any day of contract month up to and including last business day of month

Day prior to last seven (7) business days of contract month; delivery may occur on any day of contract month up to and including last business day of month

Minimum Tick ¼ of 1/32 of 1 point

¼ of 1/32 of 1 point

½ of 1/32 of 1 point 1/32 of 1 point 1/32 of 1 point

Minimum Tick Value $15.625 $7.1826 $15.625 $31.25 $31.25

For complete information, visit http://www.cmegroup.com/trading/interest-rates/

http://www.cmegroup.com/trading/interest-rates/


• 2-Year and 3-Year Note prices quoted in points per $2000

• All other US Treasury Futures quoted in points per $1000 Price

Quotations

• Minimum tick size for 30-Year Bond and Ultra Bond contracts are 1/32nd of one point ($31.25)

• 10-Year Note is half of 1/32nd of one point ($15.625)

• 5-Year, 3-Year, and 2-Year Note contracts are one quarter of 1/32nd of one point ($7.8125)

Tick Values

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Price Quotations and Tick Values


Example 1: A trader believes that the US economy is strengthening and intermediate Treasury yields will increase

Open: • Trader sells 10 contracts of March 2014 5-year T-Note futures @ 120 25/32nd

Close • Trader buys back the 10 March 2014 5-year T-Note futures @120 03/32nd

Contract Specs

• The tick size for 5-year T-Note futures is ¼ of 1/32nd of 1 point • The dollar value for minimum tick for the 5-year T-Note futures is $7.8125

Results

• Number of ticks made on the trade = (25/32 – 3/32) * 4 = 88 Ticks • Profit on this example trade = 10 Contracts X 88 Ticks X $7.8125 = $6,875

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Trading Example


Example 2: The monthly US non-farm payroll number on the first Friday of a month comes out significantly weaker than expected. This indicates a surprisingly weakening economy.

Open: • Trader buys 10 contracts of March 2014 10-year T-Note futures @ 125 15.5/32nd

Close • Trader sells back the 10 March 2014 10-Yr T-Note futures @125 23/32nd

Contract Specs

• The tick size for 10-year T-Note futures is 1/2 of 1/32nd of 1 point • The dollar value for minimum tick for the 10-year T-Note futures is $15.625

Results

• Number of ticks made on the trade = (23/32 – 15.5/32) * 2 = 15 Ticks • Profit on this example trade = 10 Contracts X 15 Ticks X $15.625 = $2,344

(rounded to nearest dollar)

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Trading Example


• Economy strengthens: - Increase in interest rates - Increased demand for loans - Asset allocation out of bonds into

stocks - Increased likelihood of interest rate

increases by the Federal Reserve Board

• When interest rate rise US Treasury prices fall

• Economy weakens - Decreased demand for loans - Asset allocation out of stocks and into

bonds - Increased likelihood of interest rate

decreases by the Federal Reserve Board

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Treasuries and Economy Historical Patterns


• Develop a yield curve outlook • Review spread logic • Filter out extraneous factors • Consider possible outcomes

33

Structuring A Yield Curve Trade


5-Year Daily

10-Year Daily

5-Year vs. 10-Year Yield Curve Comparison


• How do you expect the Treasury Yield to react to interest rate developments during the term of the trade?

- Which yields are falling? - Which yields will steepen?

• Yields flatten as they rise

• Be aware that events can interrupt normal yield curve dynamics

35

Developing a Yield Curve Outlook


The Yield Curve

Access Chart Here: http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/Historic-Yield-Data-Visualization.aspx

http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/Historic-Yield-Data-Visualization.aspx

















Review Spread Logic

Expectation: Yield Curve to Steepen Trade Idea: Long 5-Year T-Note Futures | Short 10-Year T-Note Futures

Product Initial Futures Price

Change in Cash Yield

(bps)

Final Futures Price

Difference in Futures Price

5-Year T-Note Futures 119-080 +20 118-100 0-300


Note: You buy or sell a yield curve spread in terms of what you do on the short maturity leg of the trade.


Review Spread Logic

Expectation: Yield Curve to Flatten Trade Idea: Short 5-Year T-Note Futures | Long 10-Year T-Note Futures

Product Initial Futures Price


(bps)

Final Futures Price

Difference in Futures Price




Filtering Out Extraneous Effects

True yield curve spread filters out directional effects

Product Initial

Futures Price


(bps)

Final Futures

Price

Difference in Futures

Price

Futures Dollar

Change 5-Year T-Note Futures 119-080 +20 118-100 0-300 $234.375

10-Year T-Note Futures 120-010 +10 122-090 0-240 $375.00

Goal: Filter out directional effect and design a trade that will respond only to a change in the shape of the yield curve


• 1 Basis Point (bp) = .01% of Yield

• DV01 = Dollar Value of 1 Basis Point (bp) in Yield

• DV01 indicates approximately what one futures contract will gain or lose in dollars for every 1 basis point change in yield

• Execution: Match the dollar value of a 1 bp change in the yield of the shorter-term maturity futures position and that of the longer-term maturity futures position

40

Understanding the mechanics

Access here: http://www.cmegroup.com/trading/interest-rates/files/Calculating_the_Dollar_Value_of_a_Basis_Point_Final_Dec_4.pdf

Help from CME

http://www.cmegroup.com/trading/interest-rates/files/Calculating_the_Dollar_Value_of_a_Basis_Point_Final_Dec_4.pdf


Treasury Futures Empirical Duration Tool

41

Understanding the mechanics

Access here: http://www.cmegroup.com/trading/interest-rates/duration.html As of 2/11/2014

Help from CME

http://www.cmegroup.com/trading/interest-rates/duration.html


Example of Execution

Known*: 5-Year T-Note Futures DV01 = 46.61 10-Year T-Note Futures DV01= 65.09 Calculation: 5-Year T-Note Futures DV01/10-Year T-Note Futures= Spread Ratio

Execution: 46.61 / 65.09 = .7160 Results: If you expect the yield curve to steepen, this ratio indicates that you should go long 10 contracts of 5-Year T-Note Futures and short roughly 7 contracts of 10-Year T-Note Futures

*As of 2/10/2014


• A yield curve spread trade is a speculative trade, but it shifts the burden of speculation from taking a position on interest rate or price direction to taking a position on what you expect the yield curve to do.

43

Summary


Different risks require different solutions

CBOT Treasury Futures Contract ADV Year End Open Interest

2-Year Note 229,428 760,802

5-Year Note 695,746 1,873,458

10-Year Note 1,293,365 2,221,389

30-Year Bond 338,743 648,059

Ultra Bond 83,928 452,154

Total 2,641,210 5,945,862

44

Options on US Treasury Futures

CBOT Treasury Options on Futures Contract ADV Year End Open Interest

2-Year Note 7,653 22,981

5-Year Note 96,573 811,877

10-Year Note 358,736 1,653,367

30-Year Bond 75,896 354,267

Ultra Bond 350 5,928

Total 539,208 2,848,420


Last Trading Day: The last Friday which precedes by at least two business days the last business day of the month preceding the option month. Trading in expiring options ceases at

the close of the regular CME Globex trading session for the corresponding futures contract.

Example: March 2014 UST Options expire Friday, February 21st at 4:00pm CT

Therefore they expire prior to First Position Day for the underlying futures contract

Options on US Treasury Futures deliver a futures contract – NOT a US Treasury bond or note

45




• Treasury Options 2013 ADV of 539,000 contracts/day – up 56% YOY • 2013 electronic percentage – 54% in 2013


Interest Rate Options Resources Information and Tools CME Group Interest Rate Products www.cmegroup.com/interestrates Market Maker Contact List www.cmegroup.com/rfq Block Trade Requirements and Vendor Codes: www.cmegroup.com/irvendorcodes Interest Rate Options Volume www.cmegroup.com/iroptionsvolume QuikStrike Options Analytics tool www.cmegroup.com/quikstrike Request for Cross (RFC) Information www.cmegroup.com/rfc Block Trade Rules and Procedures www.cmegroup.com/block Interest Rate Options Open Interest Profile Tool www.cmegroup.com/iroptionsoi Weekly Treasury Options www.cmegroup.com/wto Eurodollar Mid-Curve Options www.cmegroup.com/midcurves

Resource Papers Eurodollar Mid-Curves http://www.cmegroup.com/education/featured-reports/conflicting-global-signals-complicate-fed-guessing-game.html Weekly Treasury Options http://www.cmegroup.com/education/featured-reports/itcm-treasury-2014-01-07.html Treasury Options and the U.S. Economy http://www.cmegroup.com/education/featured-reports/blu-putnam-us-unemployment-poised-to-dip-below-7-percent.html Options Fundamentals http://www.cmegroup.com/education/featured-reports/option-fundamentals-for-fixed-income-asset-managers.html http://www.cmegroup.com/education/featured-reports/option-strategies-for-fixed-income-asset-managers.html

http://www.cmegroup.com/interestrates

http://www.cmegroup.com/rfq

http://www.cmegroup.com/irvendorcodes

http://www.cmegroup.com/iroptionsvolume

http://www.cmegroup.com/quikstrike

http://www.cmegroup.com/rfc

http://www.cmegroup.com/block

http://www.cmegroup.com/iroptionsoi

http://www.cmegroup.com/wto

http://www.cmegroup.com/midcurves

http://www.cmegroup.com/education/featured-reports/conflicting-global-signals-complicate-fed-guessing-game.html



http://www.cmegroup.com/education/featured-reports/itcm-treasury-2014-01-07.html

http://www.cmegroup.com/education/featured-reports/itcm-treasury-2014-01-07.html

http://www.cmegroup.com/education/featured-reports/blu-putnam-us-unemployment-poised-to-dip-below-7-percent.html



http://www.cmegroup.com/education/featured-reports/option-fundamentals-for-fixed-income-asset-managers.html















http://www.cmegroup.com/education/featured-reports/option-strategies-for-fixed-income-asset-managers.html















Thank you Pete Mulmat [email protected]

mailto:[email protected]


Glossary Terms Accrued interest = the interest that accumulates between fixed coupon payment dates. ADV = Average Daily Volume, commonly used by CME to describe the trading activity in a contract. Arbitrage = simultaneous trade between two markets using the same security. E.g. buying the same US T-Bond from one party while simultaneously selling it to another party at a slightly better price. This term has morphed over time and now is used when describing trading between markets with similar securities. Basis = usually refers to the spread between a futures contract and its underlying physical or spot market. BPV, VBP, and DV01 = all refer to the same thing, the change in dollar value of a security caused by a 0.01% change in yield. Carry = refers to the value or cost of financing a security over time. Can be expressed in positive or negative terms. CF = or conversion factor, refers to the CBOT Conversion Factor pricing system for US Treasury futures contracts. Coupon Yield = interest rate of a security fixed at issuance, usually expressed in annual terms. For example, a 2% bond pays 2% interest annually. Treasuries are quoted in coupon yield expressed in annual terms but pay interest twice per year.


Glossary Terms CTA = Commodity Trading Advisor, designation applied to registered advisors of commodity funds. CTD = cheapest-to-deliver, or the US Treasury security most efficient to deliver into a Treasury futures contract. Duration = change in value of a security to a 1% change in rate, expressed in years. For example, a bond with a 5-year duration will loose 5% of its value if rates rise by 1%. Used to measure the risk of individual bonds or bond portfolios. Eurodollar = US Dollar denominated deposits held outside the US and not under the jurisdiction of the Fed. Face Value = a.k.a. Par Value, or par, the dollar amount to be repaid to holder of the security at maturity, e.g. A $1,000 face value, 2% 10-Year Note will pay 1% twice a year for ten years and at the last payment return the to the holder $1,000. Fed = short for Federal Reserve, the US Central Bank. Fed Funds = rate a which member banks may trade balances held at the US Fed. IMM = International Monetary Market, a division of the Chicago Mercantile Exchange.


Glossary Terms IRS = as it relates to the capital markets refers to Interest Rate Swaps. LIBOR = London Inter-Bank Offer Rate, cash benchmark rate determined by survey of London based banks. Used extensively by the IRS market to price floating rate side of swaps. OI = Open Interest, used by exchanges to describe open positions at the end of a daily trading session. Repo = agreement to sell and repurchase a security in exchange for terms. The Repo market for US Treasuries provides overnight funding for banks and dealers in government securities and allows short sellers of securities to borrow securities in exchange for funds. STIR = Short-Term Interest Rates Swaps = a derivative in which counterparties exchange cash flows of one party’s financial instrument for those of the other party’s financial instrument. TED = Treasury versus Eurodollar spread. US Treasuries = or “Treasuries”, debt issued by the US Federal Government offered in multiple maturity dates auctioned on a regular auction schedule. Treasuries are made up of T-Bills, T-Notes, T-Bonds, and TIPS. UST-Bills = Treasuries with original maturity of less than 1-year.


Glossary Terms UST-Notes = Treasuries with original maturities of 2-years but no more than 10-years. UST-Bonds = Treasuries with original maturities of more than 20-years. Yield = refers to return on investment but can mean different things i.e. coupon yield, yield to maturity, current yield, and tax except yield all describe different aspects of a bond’s yield. Yield-to-Maturity = or YTM, an estimate of what the investor will receive if the bond is held to maturity. ZIRP = Zero Interest Rate Policy, policy of the Fed to hold Fed Funds rate at near zero percent.

introduction to the interest rate complex · 2014. 5. 22. · most active short -term interest rate...

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