Interest rate curves for dummies
Some resurfaceda great Q&A threadbut I don't understand a lot of the jargon around interest rates. This is my attempt to translate it for dummies like myself, so those of you in the know, please give this a look and try to explain further if you're feeling charitable this weekend. Unfortunately the OPTopside似乎并不活跃在这个论坛了. For context all of these figures were as of Oct 2021 if the rate levels look off.
GBP 1y1y is trading at ~70bps vs a terminal rate of 100bps, the market is pricing in the BoE to fully front-load hikes.
翻译：1Y率1年的前进为70bp。预计该周期（“终端”）的1年速率预计在100bps达到峰值，预计将在明年内远足70bp？
鲍威尔上周确实给我们带来了剧本。Rather than squashing the hawkish dot plot, he pretty much implied a Nov taper announcement (contemporaneously alongside treasury coupon issuance cuts), a completed taper by mid-summer, and likely a hike by Dec 2022. The market has already priced this in. So, at this stage, I think the belly of the curve (say 5s) are pretty fairly priced. If anything, 5s seem like an asymmetrical buy to me especially if you're paying/short 2y1y or 3s against it.
Translation: Paying 2y1y means you bet on the 3y rate going up relative to the 2y rate. Buying the 5y means you bet on the 5y rate going down. So on a relative basis, 2y rate down, 3y rate up, 5y rate down = you make money. How does what Powell did translate into you making this bet?
I think the best way to express this is via the fwd curves. If you look some of the fwd curves, they're already inverted which makes no sense. These curves typically only invert during peak market stress (which isn't the case since we're still easing) and during a peak hiking cycle (we haven't even tapered yet). Fwd curve steepeners, by virtue offwd swapmechanics, will put you long the belly.
翻译：前向曲线倒转意味着例如，1年前的1年率高于4Y率1年前的率，换句话说，2年速率高于1Y率和5年率？为什么只有在市场压力和峰值远足周期中才会发生这种情况？
特别是如果你有一个1 y1y或2 y1y对冲霍霍t this position, I think you're in a good position. Because either you're right and COVID is still a risk in which case hikes will come off the table and steepen the curve, or the hikes will materialize and the terminal rate needs to be higher. With 1 hike in 2022, 3 hikes in 2023, and 3 hikes in 2024, 5y5y OIS at 1.70% is still too low. Either way, these curves need to be steeper. So I do disagree with your view on long-term yields. I think they're too rich and I think its been a function of a lot of P buying from pensions who are now better funded given how equities have performed. When we actually begin tapering, I think there will be more term premium injected into the fwd curves. To be clear, the fwd curves can steepen while the spot curves flatten which, all else equal, will probably continue especially as we near rate liftoff.
Translation: 5y rate 5y forward at 1.70% means the 10y rate is higher than the 5y rate (~halfway between the 5y rate and 1.70%). And the 10y rate needs to be even higher relative to the 5y rate, why? Forward curves steepen = 2y goes down relative to 1y and 5y, while spot curves flatten = 1y and 2y go up relative to 5y, which taken together means the 1y goes up a lot (relative to the 5y), the 2y goes up (relative to the 5y) but doesn't go up as much as the 1y? Why does nearing rate liftoff make this happen?
If the substantial pickup in inflation ends up being supply-driven, we run therisk of stagflation(low growth, high unemployment, high inflation) if we hike too quickly or too late.美联储will do its best to avoid this outcome and will hurting the consumer. They will be patient on hikes by partitioning their tightening (taper first, then see how things fall before hiking - the market doesn't believe this though) and will only aggressively hike if inflation truly gets out of control (the breakeven curve is still inverted so the market isn't saying this yet).
翻译：如果有供应驱动的通货膨胀，远足太快就会杀死增长（因此“雄鹿”），远足太晚不会阻止通货膨胀。这不是真的吗？为什么要以供应驱动的通货膨胀为条件？如果需求驱动，这种逻辑会改变吗？The breakeven curve being inverted means long term inflation expectations are lower than short term inflation expectations, so the market believes in the long term the Fed will get inflation out of control?
1y1y stays where it is and sets at ~70bps. Hikes priced in currently are fair.
1y1y rallies given transitory inflation. Hikes either come off the table entirely or they get pushed out the curve. Let's just assume it takes one hike off the table (moving 1y1y back down to say 50bps).
1y1y sells off to 100bps. Either longer-dated rates (like 3y1y, 2y3y, 5y5y, etc) also reprice to the terminal rate or they invert vs 1y1y which would be the market viewing the move as a policy mistake. The inversion can ONLY be significant if the market thinks the BoE will have to cut down the road given their over-tightening OR if they completely stomp out inflation (1 more hike seems unlikely to tip the balance on this though).
1y1y售价为100bps以上，假设两次远足，因为终端速率被BOE升高。鉴于价格的远足数量（这是EUR中的Eonia曲线正在发生的事情），更长的税率和FWD必须重新估算高于1y1y，或者定期溢价被销毁，如果市场认为这些观点，则曲线会倒转徒步作为一个政策错误，北极号愿意临时收缩economyin an effort to completely eradicate inflation.
翻译：相对于短端的长期速度移动将反映市场对远足最终结果的看法（较低的长期速率=远足错误，最终逆转；更高的日期率=较高的长期远足率=远足健康，并且水平较高的水平）。为什么1年的3岁率向前，3Y率2年前，5Y率的5岁前进等。选择为“长期日期”，以与1Y率的1年前率相比？似乎有点随意？
TLDR：我太愚蠢 /懒了，无法理解暗示interest rate curve takeawaysfrom first principles. Please somebody tell me if it's safe to double down on my 30-40xEV/销售SaaS股票比3个月前的50％下降了50％。
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翻译：如果有供应驱动的通货膨胀，远足太快就会杀死增长（因此“雄鹿”），远足太晚不会阻止通货膨胀。这不是真的吗？为什么要以供应驱动的通货膨胀为条件？如果需求驱动，这种逻辑会改变吗？
^ On this, one theory is that the supply driven inflation is due to 2nd order thinking psychology. Firms believe there to be supply logjams and therefore order more inventory earlier, causing a feedback loop that further exacerbates supply logjams. The result is artificially tight supply and higher prices. The hikes would increase cost of borrowing and temper higher order prudent thinking to try to game supply logjams, whereas true demand would not be in excess and be inelastic.
thanks a lot！
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