Thank you once more for all the work you put into this channel. Your work has inspired me to purchase the Applied Series. I haven’t had a chance to go through the material yet because I’m currently studying for another securities exam., but I look forward to digesting the applied series soon. Thank you for this video in particular and again thank you for all your hard work,
Dr. Meldrum, thank you so much for your efforts and all the knowledge you share. But specifically, this video was so much needed, the fact that you made this video to address this topic speaks a lot about u and the kind of mentor you are, thank you very very much!
Dr. Mark, thank you for your content and your efforts to bring very valuable knowledge to professionals and students at zero cost. I look forward to your weekly content, both on RU-vid and on your website.
Thanks as always for such a clear and instructional video Dr. Mark. One question I have relates to the material from the 40.50 minute mark where you make the point that we should be indifferent between investing for 3 years and rolling over at the forward rates versus just investing for 3 years (makes perfect sense). It's mentioned that when we take the (appropriate nth-root of) the product of (1 + 1yr)(1 + f1,1)(1 + f2,1), that we should get back today's nominal 3yr (par) rate (i.e. 4.19%). My question is, from a technical standpoint should we not expect to get back today's 3yr spot rate (instead of the 3yr par rate)? From CFA Level 2 FI module, I had it in my mind that forward rates were derived from spot rates which made me think that while taking the product of the successive forward rates in the way shown would get us close to the 3yr par rate (i.e. would be a good approximation), that it wouldn't get us there precisely and that instead it would get us to the spot rate for that 3yr maturity instead. Am I going about applying this concept in the wrong way here ?
You can do that. Since the spot rates are derived from the par curve, and the forward rates from there, they all have the same common mathematical relationship.
What does a positive or negative change in the yield curve mean? As an example, 01/01/2023 to 02/10/2023 the yield on a 2 yr treasury has changed 9bps. How and why does this happen and is this a good or bad thing? Also, I have been hearing that the Fed can only influence the front end of the curve, why is that the case if it is true?
@49:40 Is it necessary that real rates would drop when (EFFR) drops (due to break even rates dropping)? It can also be the case that real rates have gone up keeping inflation the same. resulting in breaking even rates going down & lowering EFFR?
Hi Dr. Mark, I am unable to get the same probability using the Fed Fund Futures Formula at Level 3 Derivatives for these interest rate hike decisions. Could you assist me with one? Perhaps it is done differently
The FFF considers the entire month - so if there is a meeting within the month - than the rate will reflect a split between pre- and post-meeting rates. CME's FedWatch tool does all this for you. As Einstein said, why remember something you can just look up.
In the case that it's not a joke... This is to look at what the market prices-in or forecasts for rates. If you have a contrarian view, relative to what's priced-in, and you anticipate that the market will correct in-line with your view, then there's money to be made. Rates affect everything, discounted cash flows and cost of capital as obvious examples, and so there's a near infinite number of ways to put-on that trade and monetize that view. Up to you to find the best risk/reward trade offered to express it.
