Yield Curves

Yield curves are the basis for every investment and hedge decision. Derivox is your guide. We provide accurate data, generate insights and help with decision making.



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Meet our Elite Finance Team:

Pioneers in Treasury, Interest Rate Strategies, and Global Financial Management


Thomas Maurer's innovative approach to finance, particularly in derivatives trading and market making, has been pivotal in shaping market strategies. Maurer's career is marked by his ability to navigate complex financial landscapes, making him a respected leader in the field.His significant 12-year tenure at Julius Baer, particularly as Head of the Global Interest Rate Competence Center, reflects his deep understanding and mastery of interest rate strategies and asset-liability management. His role at Vontobel as Senior Advisor in Structured Products Fixed Income, FX, and Credits underscores his strategic insight into global financial markets.His ability to navigate complex financial landscapes has established him as a respected and influential leader in the field, renowned for his analytical skills and forward-thinking perspective.

Jean-Francois Alarie

Jean-Francois Alarie stands out as a seasoned finance professional, having held the pivotal role of Group Treasurer at Julius Baer in Zurich for over six years.His extensive career is marked by a deep involvement in treasury management and an intricate understanding of yield curves, vital for strategic financial planning and risk management. Before his significant tenure at Julius Baer, Alarie honed his expertise at BearingPoint as a Senior Consultant. His early career years as an ALM/Derivatives Specialist at Raiffeisen Schweiz and UBS.Alarie's professional journey encapsulates a profound grasp of the financial sector, marked by innovative strategies and a keen insight into the dynamics of financial markets.

Yield curves

Derivox: Yield Curve Tools for professional investors.


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The Derivox yield curve dashboard offers a comprehensive, interactive platform for analyzing various financial instruments.

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It features interactive curves for government bonds, overnight rates, strips, swaps, and futures across major currencies.


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The dashboard also provides implied forward rate curves, essential for forecasting, and includes forward pricers with broken date functionality.


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Notably, this web-based tool requires no installation, making it easily accessible and user-friendly for financial professionals and analysts.

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Understand the Implied Forward Rate Curve

The implied forward rate curve represents the market's expectations for future interest rates derived from the current yield curve of bonds or interest rate instruments. It's not directly observable in the market but is calculated from the term structure of interest rates, which shows the relationship between the yield of bonds and their time to maturity.

In the example chart from Derivox, we observe a decline in the overnight tenor USD future strip rates over a horizon of the next two years, starting from the current rate of 5.35% to less than 3.50%.

The implied forward rates curve reflects investor sentiment about future economic conditions, including growth, inflation, and other macroeconomic factors. Investors use implied forward rate curves to make decisions about fixed-income investments, hedging strategies, and interest rate risk management.An upward-sloping implied forward rate curve suggests that investors expect interest rates to rise, which is often associated with economic expansion and potentially higher inflation. A downward-sloping curve indicates expectations for lower future interest rates, possibly due to economic downturn or deflationary pressures. A flat curve suggests stable interest rates over the forecast period, indicating uncertainty or balanced views on future economic conditions.

The second example chart illustrates an expected rise in the 10-year tenor USD Overnight Index Swap (OIS) rates for a ten-year horizon, whereas the yields on 10-year tenor government bonds are anticipated to remain constant over the same timeframe


How to use Forward Rates in Customer Conversations

Explaining an implied forward rates chart to a client involves breaking down the concept into digestible parts and relating it to their financial goals and interests. Here's a structured approach to make the explanation clear and impactful.Start with the BasicsBegin by explaining that implied forward rates are predictions about future interest rates based on current bond prices. They are not guaranteed rates but represent the market's expectations for future interest rates at different points in time. Clarify that these rates are derived from the yield curve, which plots the interest rates of bonds of the same credit quality but different maturities. The yield curve helps investors understand how interest rates are expected to change over time.Describe the ChartIntroduce the client to the basic layout of the implied forward rates chart, noting the x-axis typically represents time (from the present into the future), and the y-axis represents the implied interest rates. Explain how the shape of the curve can indicate future interest rate trends. For example, an upward-sloping curve suggests that interest rates are expected to increase, while a downward-sloping curve indicates expected decreases in interest rates.Relate to Economic IndicatorsDiscuss how implied forward rates reflect the market's expectations regarding economic growth, inflation, and central bank policy. For instance, if the curve suggests rising rates, it may indicate expectations of economic expansion or increasing inflation.Connect to the Client's InterestsTie the concept to the client's investment portfolio. Explain how expectations of rising or falling interest rates could affect the value of bond investments, interest-sensitive stocks, and overall portfolio performance. Discuss how understanding these rates can help in making informed decisions about timing investments, choosing between fixed-income securities, and managing interest rate risk.Use Visuals and ExamplesUtilise charts and visuals to illustrate your points, making complex information more accessible. Provide examples of how shifts in the implied forward rates have historically impacted financial markets and investment portfolios.Encourage QuestionsEncourage the client to ask questions about areas they find confusing or wish to explore further. This ensures they have a solid understanding and feel comfortable with how these concepts apply to their financial strategy.Simplify Complex ConceptsUse simple language and avoid industry jargon as much as possible. Relate the concepts to everyday experiences or familiar situations to make the explanation more relatable.By following this approach, you can effectively communicate the nuances of an implied forward rates chart to a client, enhancing their understanding of market expectations for future interest rates and how these insights can inform their investment decisions.

Effective Strategies


One of the challenges faced by financial institutions and investors alike is managing the risk associated with fluctuating interest rates. Hedging against... Read more

Tools and Techniques


While forecasting interest rates with absolute certainty is impossible, several tools and techniques can significantly enhance the accuracy of these predictions... Read more

interest rate risk


Interest rate risk management is a critical component of a bank's overall risk management strategy, ensuring financial stability and profitability in the face of fluctuating... Read more

Role of Central banks


Central banks play a pivotal role in shaping the economic landscape, with their policies significantly impacting interest rate volatility. Through tools such as... Read more

Mortgage Markets


An analysis focusing on the effects of interest rate changes on the housing market, mortgage rates, and strategies for both lenders and borrowers to navigate... Read more

Financial Advisors


Tips and best practices for financial advisors on how to communicate with clients about interest rate risks and the impact on their investments, enhancing client trust and.... Read more


Hedging Strategies for Managing Interest Rate Risk in Corporate Finance

Interest rate risk can significantly impact the financial stability and profitability of an institution. As ALM experts, the ability to effectively hedge against interest rate risks is crucial in navigating this uncertainty, ensuring that balance sheets are resilient and financial objectives are met.Understanding Interest Rate RiskInterest rate risk arises from the possibility of changes in interest rates affecting the value of assets and liabilities, thereby impacting an institution's net interest income and capital. This risk is multifaceted, stemming from factors such as mismatches in the maturity or repricing of assets and liabilities (referred to as gap risk), changes in the slope of the yield curve (basis risk), and optionality embedded in financial products.Advanced Hedging StrategiesInterest Rate SwapsSwaps are agreements to exchange interest rate payments, typically swapping fixed for floating rates or vice versa. Utilizing swaps allows institutions to transform the interest rate characteristics of their assets or liabilities, aligning them more closely with their risk management objectives. For example, an institution facing the risk of rising interest rates on a floating-rate liability may enter into a swap to pay a fixed rate and receive a floating rate, thereby locking in its interest expenses.Caps, Floors, and CollarsInterest rate options such as caps, floors, and collars offer protection against adverse interest rate movements while allowing participation in favorable movements. A cap sets a maximum interest rate level, a floor establishes a minimum rate, and a collar combines both to set an upper and lower boundary on interest rates. These instruments can be customized to match the specific risk profile of the institution's assets or liabilities.Futures and Forward Rate Agreements (FRAs)Interest rate futures and FRAs enable institutions to lock in future interest rates, hedging against the risk of unfavorable rate movements. Futures contracts are standardized and traded on exchanges, while FRAs are over-the-counter agreements tailored to the needs of the parties. By fixing the interest rate for a future period, institutions can stabilize their expected cash flows and interest margins.Dynamic Gap ManagementDynamic gap management involves adjusting the duration gap between assets and liabilities to manage sensitivity to interest rate changes. This strategy may include altering the composition of the balance sheet through the acquisition or sale of assets and liabilities with specific maturities or interest rate sensitivities. By actively managing the gap, institutions can mitigate the impact of interest rate fluctuations on their net interest margin.Asset and Liability MatchingClosely related to gap management, asset and liability matching (ALM) focuses on aligning the cash flows and durations of assets and liabilities to reduce interest rate risk. This can involve matching the maturities of fixed-rate assets and liabilities or using derivatives to synthetically create a match. Proper ALM reduces the need for frequent adjustments in response to interest rate changes, providing a more stable financial environment.Securitization and Structured ProductsSecuritization allows institutions to convert a pool of assets, such as mortgages, into a tradable security. By doing so, they can transfer the interest rate risk associated with these assets to investors. Similarly, structured products can be designed to have specific interest rate characteristics, offering another tool for managing interest rate exposures.Integrated Risk Management SystemsLeveraging advanced risk management systems that integrate market, credit, and operational risk can provide a holistic view of an institution's risk profile, including interest rate risk. These systems enable real-time monitoring and analysis, facilitating more informed and timely hedging decisions.Implementing Hedging StrategiesThe successful implementation of these hedging strategies requires a deep understanding of the institution's risk profile, regulatory environment, and the market dynamics. It also necessitates a robust risk management framework that includes:

  • Risk Identification: Clearly defining interest rate risk and its sources within the institution's portfolio.

  • Risk Measurement: Utilizing sensitivity analysis, scenario analysis, and value-at-risk (VaR) models to quantify interest rate risk.

  • Strategy Selection: Choosing hedging strategies that align with the institution's risk tolerance, financial objectives, and regulatory requirements.

  • Execution and Monitoring: Implementing hedging strategies efficiently and monitoring their effectiveness over time, making adjustments as necessary.

ConclusionHedging against interest rate risks is a vital component of effective ALM, requiring a blend of financial acumen, strategic foresight, and rigorous risk management. By employing a comprehensive and dynamic approach to hedging, ALM experts can safeguard their institutions against the adverse effects of interest rate volatility, ensuring financial stability and contributing to long-term success. As the financial landscape continues to evolve, staying abreast of the latest tools, techniques, and regulatory developments will be key to mastering the challenges of interest rate risk management.


How to Predict Interest Rate Movements: Tools and Techniques

In the world of investment, accurately predicting interest rate movements is akin to holding a crystal ball that illuminates the path of future market trends. For professional investors, understanding the trajectory of interest rates is paramount, as these movements can significantly impact investment portfolios, affecting everything from bond prices to stock valuations and real estate investments. This blog delves into the sophisticated tools and techniques that can enhance the precision of forecasting interest rate trends, offering a competitive edge in the fast-paced financial markets.Economic Indicators: The Pulse of Interest RatesAt the heart of interest rate predictions lie economic indicators, the vital signs of an economy's health. Key indicators such as inflation rates, unemployment figures, GDP growth, and consumer spending offer clues about the central bank's next moves. For instance, rising inflation often prompts central banks to hike interest rates to cool the economy, while high unemployment might lead to rate cuts to stimulate growth. Professional investors scrutinize these indicators, using them as a compass to navigate the future direction of interest rates.Yield Curve Analysis: Deciphering Market ExpectationsThe yield curve, a graph plotting the yields of bonds of the same credit quality but different maturities, serves as a powerful tool for predicting interest rate movements. A normal, upward-sloping yield curve suggests economic expansion, with higher long-term interest rates reflecting the anticipation of growth and inflation. Conversely, an inverted yield curve, where short-term rates exceed long-term rates, has historically been a harbinger of economic recession and impending interest rate decreases. Savvy investors analyze the shape of the yield curve to gauge market sentiment and future rate changes.Central Bank Communications: Reading Between the LinesCentral banks, such as the Federal Reserve in the United States, play a pivotal role in setting interest rates. Their policy statements, minutes from meetings, and public speeches are meticulously examined by investors for hints about future monetary policy. Phrases indicating concerns about inflation or economic overheating might signal rate increases, while mentions of economic risks could hint at rate cuts. Decoding these communications allows investors to anticipate rate adjustments before they occur.Financial Models: The Quantitative ApproachAdvanced financial models incorporate a range of variables, including economic indicators, market data, and historical interest rate trends, to forecast future rates. These models range from simple linear regressions to complex machine learning algorithms capable of analyzing vast datasets to identify patterns and predict rate movements. While no model can predict with absolute certainty, they can provide valuable insights, helping investors make informed decisions.Market Sentiment and Futures Pricing: The Collective WisdomMarket sentiment and expectations, often reflected in the pricing of interest rate futures and options, offer a glimpse into the collective market view on the direction of interest rates. These financial instruments, traded on exchanges, are priced based on anticipated future interest rates, serving as a consensus forecast. By analyzing futures curves and option volatilities, investors can gauge market expectations and adjust their strategies accordingly.ConclusionPredicting interest rate movements is a complex endeavor that requires a multifaceted approach, blending economic analysis, market sentiment, and quantitative modeling. By employing a comprehensive toolkit and staying attuned to signals from economic indicators, central bank communications, and market pricing, professional investors can navigate the uncertainties of interest rate fluctuations. While perfect foresight remains elusive, these tools and techniques offer the means to make educated guesses, positioning investors to capitalize on interest rate trends and safeguard their portfolios against potential headwinds.


Best Practices in Interest Rate Risk Management for Banks

Interest rate risk management is a critical component of a bank's overall risk management strategy, ensuring financial stability and profitability in the face of fluctuating interest rates. Here are some best practices for banks looking to effectively manage this risk:1. Comprehensive ALM Framework: Implement a robust asset and liability management (ALM) framework that integrates interest rate risk management into the bank's broader risk management processes. This involves regular ALM committee meetings, clear communication channels, and well-defined roles and responsibilities.2. Diversification: Diversify the bank's asset and liability portfolio to spread and minimize the impact of interest rate changes. This includes diversifying across different types of loans, securities, and funding sources with varying maturities and interest rate sensitivities.3. Gap Analysis: Perform regular gap analysis to identify mismatches between assets and liabilities in terms of interest rate re-pricing. This helps in understanding the bank's exposure to interest rate changes and informs strategic decisions.4. Use of Derivatives: Employ interest rate derivatives like swaps, futures, and options as hedging instruments to mitigate interest rate risks. These financial products can be tailored to the bank's specific risk profile and exposure.5. Dynamic Monitoring and Stress Testing: Continuously monitor interest rate movements and conduct stress testing under various scenarios. This proactive approach allows banks to assess potential impacts on their financial condition and adjust their strategies accordingly.By adhering to these best practices, banks can navigate the complexities of interest rate fluctuations, safeguarding their margins and enhancing their risk management capabilities.


The Role of Central Banks in Interest Rate Volatility: An Analysis

Central banks play a pivotal role in shaping the economic landscape, with their policies significantly impacting interest rate volatility. Through tools such as open market operations, discount rates, and reserve requirements, central banks influence the supply of money, thereby affecting interest rates directly.One key mechanism is the setting of benchmark interest rates, which serves as a guide for the cost of borrowing. Changes in this rate can sway economic activity by encouraging or discouraging spending and investment. For instance, lowering interest rates aims to stimulate economic growth by making borrowing cheaper, while raising rates can help curb inflation by discouraging borrowing.Furthermore, central banks' forward guidance, which involves communicating future monetary policy intentions, also affects interest rate expectations and market volatility. By signaling their plans, central banks can influence economic behaviors even before any policy change is implemented.However, the globalized nature of financial markets means that actions by major central banks can have worldwide repercussions, contributing to global interest rate volatility. Investors and financial managers must therefore closely monitor central bank policies, both domestically and internationally, to navigate the uncertainties of interest rate fluctuations effectively.In essence, central banks wield significant power over interest rates, and their actions are closely watched by market participants for insights into future economic conditions and interest rate trends.


Interest Rate Volatility: Impact on Mortgage Markets and How to Respond

Interest rate volatility is a significant factor influencing the mortgage markets, affecting everything from the affordability of loans for borrowers to the profitability of products for lenders. As interest rates fluctuate, so do mortgage rates, leading to shifts in buyer behavior, the demand for housing, and the strategies employed by financial institutions.Impact on Borrowers and the Housing MarketFor borrowers, rising interest rates mean higher mortgage payments, directly impacting affordability. This can cool down a hot housing market as fewer people can afford to buy homes, leading to a decrease in demand. Conversely, when rates fall, the lower mortgage payments can stimulate demand, driving up home sales and prices.Strategies for BorrowersBorrowers should consider locking in fixed-rate mortgages during periods of low rates to shield themselves from future increases. Adjustable-rate mortgages (ARMs) might be attractive in high-rate environments if rates are expected to fall, but they come with the risk of rate increases. Financial literacy and consulting with financial advisors can help borrowers make informed decisions.Impact on LendersLenders face the challenge of balancing risk and reward in a volatile interest rate environment. Interest rate swings can affect the value of the loans they hold and their interest income, posing a risk to their financial stability.Strategies for LendersLenders can use interest rate swaps and other derivatives to hedge against drastic fluctuations. Offering a mix of loan products, including both fixed-rate and adjustable-rate mortgages, can also help manage risk while catering to diverse borrower needs.ConclusionNavigating interest rate volatility requires proactive strategies from both lenders and borrowers. By staying informed about market trends and employing financial instruments wisely, stakeholders can mitigate the impacts of rate changes, ensuring stability in the mortgage markets despite the uncertainty.


Effective Communication Strategies for Financial Advisors in Times of Interest Rate Volatility

In times of interest rate volatility, financial advisors face the crucial task of maintaining clear, effective communication with their clients. The ability to articulate the impacts of fluctuating rates on investments and strategize accordingly can significantly enhance client trust and relationships. Here are key tips and best practices for financial advisors navigating these challenging periods.Stay Proactive: Don’t wait for clients to reach out with their concerns. Proactively schedule meetings or calls to discuss how interest rate changes could affect their portfolios. This proactive approach demonstrates your commitment to their financial well-being.Educate Your Clients: Use simple, jargon-free language to explain the relationship between interest rates and the financial markets. Provide educational resources that help them understand the broader economic context, making them feel more informed and secure in their investment decisions.Personalize Communication: Tailor your communication to the individual needs and risk tolerances of each client. Personalized advice not only builds trust but also reassures clients that their unique goals are being considered and protected.Offer Solutions, Not Just Information: While it’s important to inform clients about potential market risks, it’s equally crucial to offer solutions. Discuss hedging strategies, diversification options, or adjustments to their investment plan that can help mitigate the impact of interest rate volatility.Maintain Regular Contact: Establish regular check-ins to update clients on market developments and any adjustments to their financial strategy. Consistent communication keeps clients engaged and reassures them that you are actively managing their investments amidst market fluctuations.By adopting these communication strategies, financial advisors can navigate the complexities of interest rate volatility with confidence, ensuring clients feel supported, informed, and prepared to adjust their investment strategies as needed. This approach not only strengthens client relationships but also positions you as a trusted advisor, capable of guiding them through any market conditions.

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