The 9y spot? You can calculate it by interpolation (spline, Nelson siegel, linear, etc) using various bonds maturity vs yield to maturity, or interpolation using 2, 5 and 10y yield curve index.
Thank you for another educational piece. The chart briefly touched the drivers of the yield curve movement (growth and inflation) in different scenarios but would you please share more insights on this?
There are lots of discussions on the recent bear steepening. I assume the short end would be heavily impacted by expectations of the FFR route, but I struggle to understand the drivers of the longer end and ultra long end of the yield curve, the 10 year and further down 20/30 year. And the interaction of these to expectation of what Fed will do/inflation expectation/growth expectation etc.
Long-term rates are fundamentally driven by growth and inflation (the same ones that drive monetary policy rates). To this is added a term premium (which compensates for the risk of having more uncertainty, but it has been negative in recent years). Then there are technical drivers, such as the demand for securities (from foreign investors or insurance companies, who need long-term investments) and supply (the budget deficit which must be financed with debt). Look at this scorecard in this tweet which sums it all up pretty well.
Queste sfumature sono davvero preziose, ti ringrazio per i contributi di assoluto valore e per il tempo dedicato alla loro diffusione. È senz’altro di aiuto, forse la domanda andava fatta in inglese in modo che la risposta fosse accessibile a tutti.. grazie ancora
No worries, I'll traslate my answer so others could read it if it can help them.
Hi, glad you liked the piece. So if you have Bloomberg the game is trivial but I guarantee you that calculating it in excel is no less starting from the rate curve you have. Because I honestly don't know of any sites that calculate carries and rolls directly (and I don't think there are any). If you have the spot curve, the rate at 9.75 years (which you will need to calculate a three-month carry) you simply do it by interpolation between 9 and 10 years (then you see if it is linear, spline or Nelson siegel). The trickiest part possibly comes from calculating the forward rate (which obviously isn't a quoted rate) but I guarantee you that it's still easy to calculate starting from the spot rate curve. I'll give you an example: If you want to calculate the rate 1y1s (1 year 1 year fwd) you simply need 1s and 2s the two spot rates and the formula is: (1+2s)/(1+1s) - 1 Search for the formula generic that applies to all the terms that interest you then eventually. I hope it helps you.
Thanks for the piece - how do you go about analysing different government yield curves and the influence foreign investors have on the market? E.g. Japanese investors buying US treasuries over Japanese government bonds and vice versa. What are the main factors here?
I wrote a piece on a RV framework to trade duration across countries. I use several of these to be honest. Regarding influence of foreign investors I look at flow (bloomberg offers data on this) and also at yield hedged for different type of investors (for example a treasury yield for a japanese investor).
For a rapid view on RV I use the real yield across countries but for a better calculation you should add/remove the forward point to arrive at a hedging cost.
You can do it on a 3M roll period (the standard approach) or a taking directly the correct term of the curve.
Ciao, volevo chiederti se sei a conoscenza di fonti alternative per reperire i valori del carry roll down sulla curva.. benché banali da calcolare, almeno nella versione di bloomberg, se ad esempio volessi calcolare il roll per il 10Y su un orizzonte di 3 mesi, dovrei conoscere i rendimenti a 9,9 anni (e questo rende il calcolo meno immediato). Grazie, gran bel pezzo!
Allora se hai bloomberg il gioco è banale ma ti garantisco che anche calcolarlo su excel non è da meno a partire dalla curva dei tassi che hai.
Perché sinceramente non sono a conoscenza di siti che calcolano direttamente carry e roll (e non credo ne esistano).
Se hai la curva spot il tasso a 9,75 anni (che ti servirà per calcolare un carry a tre mesi) lo fai semplicemente per interpolazione tra 9 e 10 anni (poi vedi tu se lineare, spline o Nelson siegel).
La parte più tricky viene eventualmente dal calcolo del tasso forward (che ovviamente non è un tasso quotato) ma ti garantisco che è comunque facile da calcolare a partire dalla curva dei tassi spot. Ti faccio un esempio:
Se vuoi calcolare il tasso 1y1s (1 anno 1 anno fwd) a te servono semplicemente 1s e 2s i due tassi spot e la formula é:
(1+2s)/(1+1s) - 1
Cerca la formula generica che vale per tutti i term che ti interessano poi eventualmente.
Fantastic piece!! Really enjoyed this post.
Thank you so much
Hi, what a great piece!
1Y roll-down for a 10Y bond = 10Y spot - 9Y spot = 3.863 - 9Y spot?
Where to find the 9Y spot?
Thank you, I happy to know you liked it.
The 9y spot? You can calculate it by interpolation (spline, Nelson siegel, linear, etc) using various bonds maturity vs yield to maturity, or interpolation using 2, 5 and 10y yield curve index.
Thank you for another educational piece. The chart briefly touched the drivers of the yield curve movement (growth and inflation) in different scenarios but would you please share more insights on this?
There are lots of discussions on the recent bear steepening. I assume the short end would be heavily impacted by expectations of the FFR route, but I struggle to understand the drivers of the longer end and ultra long end of the yield curve, the 10 year and further down 20/30 year. And the interaction of these to expectation of what Fed will do/inflation expectation/growth expectation etc.
Long-term rates are fundamentally driven by growth and inflation (the same ones that drive monetary policy rates). To this is added a term premium (which compensates for the risk of having more uncertainty, but it has been negative in recent years). Then there are technical drivers, such as the demand for securities (from foreign investors or insurance companies, who need long-term investments) and supply (the budget deficit which must be financed with debt). Look at this scorecard in this tweet which sums it all up pretty well.
https://twitter.com/Credit_Junk/status/1690380034291204096?t=EO4za0Do-3-kR1mr8LojNg&s=19
Thanks!
Pleasure!
Great piece, thanks for sharing!
Thank you
Queste sfumature sono davvero preziose, ti ringrazio per i contributi di assoluto valore e per il tempo dedicato alla loro diffusione. È senz’altro di aiuto, forse la domanda andava fatta in inglese in modo che la risposta fosse accessibile a tutti.. grazie ancora
No worries, I'll traslate my answer so others could read it if it can help them.
Hi, glad you liked the piece. So if you have Bloomberg the game is trivial but I guarantee you that calculating it in excel is no less starting from the rate curve you have. Because I honestly don't know of any sites that calculate carries and rolls directly (and I don't think there are any). If you have the spot curve, the rate at 9.75 years (which you will need to calculate a three-month carry) you simply do it by interpolation between 9 and 10 years (then you see if it is linear, spline or Nelson siegel). The trickiest part possibly comes from calculating the forward rate (which obviously isn't a quoted rate) but I guarantee you that it's still easy to calculate starting from the spot rate curve. I'll give you an example: If you want to calculate the rate 1y1s (1 year 1 year fwd) you simply need 1s and 2s the two spot rates and the formula is: (1+2s)/(1+1s) - 1 Search for the formula generic that applies to all the terms that interest you then eventually. I hope it helps you.
Thanks for the piece - how do you go about analysing different government yield curves and the influence foreign investors have on the market? E.g. Japanese investors buying US treasuries over Japanese government bonds and vice versa. What are the main factors here?
I wrote a piece on a RV framework to trade duration across countries. I use several of these to be honest. Regarding influence of foreign investors I look at flow (bloomberg offers data on this) and also at yield hedged for different type of investors (for example a treasury yield for a japanese investor).
https://creditfrommacrotomicro.substack.com/p/a-framework-for-rv-in-duration
Thanks! I will revisit that piece. On the yield hedged, how do you determine this? Is it as simply as taking the interest rate differential?
Do you have any thoughts on yield hedged levels and how it may impact the funding task that the US treasury has?
For a rapid view on RV I use the real yield across countries but for a better calculation you should add/remove the forward point to arrive at a hedging cost.
You can do it on a 3M roll period (the standard approach) or a taking directly the correct term of the curve.
Thanks, really appreciate that. Are there any resources you could recommend to get a deeper understanding of RV in the govvie space?
Ciao, volevo chiederti se sei a conoscenza di fonti alternative per reperire i valori del carry roll down sulla curva.. benché banali da calcolare, almeno nella versione di bloomberg, se ad esempio volessi calcolare il roll per il 10Y su un orizzonte di 3 mesi, dovrei conoscere i rendimenti a 9,9 anni (e questo rende il calcolo meno immediato). Grazie, gran bel pezzo!
Ciao, sono contento ti sia piaciuto il pezzo.
Allora se hai bloomberg il gioco è banale ma ti garantisco che anche calcolarlo su excel non è da meno a partire dalla curva dei tassi che hai.
Perché sinceramente non sono a conoscenza di siti che calcolano direttamente carry e roll (e non credo ne esistano).
Se hai la curva spot il tasso a 9,75 anni (che ti servirà per calcolare un carry a tre mesi) lo fai semplicemente per interpolazione tra 9 e 10 anni (poi vedi tu se lineare, spline o Nelson siegel).
La parte più tricky viene eventualmente dal calcolo del tasso forward (che ovviamente non è un tasso quotato) ma ti garantisco che è comunque facile da calcolare a partire dalla curva dei tassi spot. Ti faccio un esempio:
Se vuoi calcolare il tasso 1y1s (1 anno 1 anno fwd) a te servono semplicemente 1s e 2s i due tassi spot e la formula é:
(1+2s)/(1+1s) - 1
Cerca la formula generica che vale per tutti i term che ti interessano poi eventualmente.
Spero che ti sia di aiuto.