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crackfox


Total Posts: 1
Joined: Apr 2018
 
Posted: 2018-04-10 11:51
I've often seen research papers, bank representatives and trader-type people discuss trading different forward combinations of a yield curve, e.g., "the Japanese yield curve, which again we started trading around 1999 or 2000 when you could do a 5-year, 5-year forward against a 20-year, 10-year forward steepener," or "A 15-year, 15-year forward sterling versus euros". (from Inside the House of Money).

I understand that a 5-year, 5-year forward is a borrowing for 5 years, 5 years from now & that a 20y10y would be a 10 year borrowing 20 years from now and can see the use for hedging. But I'm really curious why these types of combinations are traded speculatively in so many examples--as opposed to simply trading a 5 year rate vs. a 20 year rate.

Is there some other lens from which I can view the meaning of these forwards and what they represent on the curve?



vinpao


Total Posts: 17
Joined: Mar 2013
 
Posted: 2018-04-10 23:52
Because spreads between forward yields used to show more anomalies than spreads between spot rates.


Martinghoul


Total Posts: 864
Joined: Oct 2008
 
Posted: 2018-04-18 21:58
Leverage also plays a role (related to the other poster's response somewhat)...

Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness...
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