28
Aug
10

Convexidad y el Flattening Trade

Minyanville tiene un interesante post y una buena razon para seguir pensando que las yields de la parte larga puede seguir bajando.

So long as there are convexity gains to be made in duration-neutral yield curve flatteners, long-term yields can continue to fall.

Si entendiste esto, bien. Y si no, Minyanville lo explica muy bien.

Whoa, that’s a mouthful. But it’s not all that complex once we dissect it from back to front for a 5-10 year Treasury trade. The flattening trade is borrowing a shorter maturity, here the 5-year, and lending at a longer-maturity, here the 10-year. The duration-neutral aspect is simply a hedge ratio to neutral overall interest rate exposure; we’d need to trade about 1.8 5-years for every 10-year at last count.

Convexity is the rate at which duration — the sensitivity of bonds to interest rates — changes as a function of yields. Convexity is valuable: The higher it is, the more the bond gains as rates fall and the less the bond loses as rates rise. For those of you comfortable with option Greeks, think of duration and convexity as you might delta and gamma.

No se porque, pero todo este tema me hizo acordar a una vieja cancion que dice asi en su estribillo.

I’m forever blowing bubbles,
Pretty bubbles in the air.
They fly so high,
Nearly reach the sky,
Then like my dreams,
They fade and die.
Fortune’s always hiding,
I’ve looked everywhere,
I’m forever blowing bubbles,
Pretty bubbles in the air.

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