Well the title is a bit of an overstatement! This post is actually just a short note with a link to a document which covers the concept of specialness in the repo market, and which is actually a good description of the repo market as a whole. Such things are hard to find, you know. … Continue reading Everything you wanted to know about Repo but were afraid to ask
Positive carry can be an obsession for fixed-income investors. For a simple explanation of carry for a bond position have a look at this well-written post: click here.
The N-year swap spread is defined as: N-yr swap spread := N-yr swap rate - N-yr government bond yield. Since most quants spend much less time on the bond market than on the swaps market, they often don't come to appreciate the central importance of the swap spread. Here is an unordered list of why … Continue reading Facts, rules of thumb, and intuition for swap spreads
Everybody talks about LIBOR, and you don't really hear much about LIBID. In fact, the BBA only fixes LIBOR and LIBID is left to free float if you like. The fact is that most banks will need to borrow more than they will need to lend. Or rather, for each investment opportunity they see they will … Continue reading LIBOR vs LIBID
Every quant knows the expression that defines a forward FX rate on date t with maturity T: where B_f is the foreign discount factor and B_d is the domestic discount factor. But what is the best way to explain this intuitively? Here is my suggestion. Let's pick an example pair, say EUR and CHF, and see … Continue reading Intuition for the forward FX equation
As everyone knows: one basis point is 0.01%, and one cent is 0.01% too. The difference is that we typically use cents when we refer to an upfront price, and use bips when we refer to a rate (in a swap for example). So a trader may ask: "what is 3 bps worth upfront?" which … Continue reading Speaking with a rates trader: cents or bips?
In this post I present some tips on how to understand fixed-income trader jargon. If you are a quant working closely with swaps or options traders (as I was once), then you won't get very far in a discussion unless you have a certain amount of fluency with the following terms. Some were passed on … Continue reading Understanding trader jargon