Friday, September 30, 2022

Primer: Basics Of A Swap Meltdown — Brian Romanchuk

I am now seeing more attempts to dig into what exactly happened in the United Kingdom interest rate market. In this article, I am not attempting to do that. Instead, I am just giving a primer on how interest rate swaps are used to hedge liabilities, and what can go wrong when interest rates rise. The mechanisms I describe were likely part of the issue, but I am not saying that this is “the” explanation. Since most people are unsure what liability-driven investment and swaps are, so I am hoping to cover big picture issues for those readers.…
Bond Economics
Primer: Basics Of A Swap Meltdown
Brian Romanchuk



4 comments:

Matt Franko said...

“ As swap rates rise, the pension fund would need to post more collateral — loosely speaking, a margin call.”

Yo, Swap rates don’t rise “by themselves “… financial regulators (Central Bank) increase the rate it’s part of their monetary policy….

Why don’t the monetary policy regulators talk to the pension fund regulators beforehand and tell them that they are considering increasing rate from 0 to 3% in 180 days and ask them if they would see a problem with pension fund regulation as a result of that? Like normal people?

Matt Franko said...

This is like Sept 17, 2019 when these same moron Art degree people reduced system reserves at banks to 1.29T when at the same time imposing a 10% RRR (reserve assets /deposit liabilities) when system deposit liabilities were over $13T…

Then they spewed more of their Art degree moron figurative language and said “liquidity dried up!” like they had nothing to do with it..,

Mwarang'ethe said...

https://www.ft.com/content/ea41ce6d-e8b2-465e-8dff-8b7fa71dc7b4

Mwarang'ethe said...

Volatility vortex’ 😂😂slams into $24tn US government bond market
Key measure of turbulence in Treasuries reaches highest level since 2020 coronavirus crisis