Carry Trades and the Interest Parity Condition The uncovered interest rate parity (UIP) condition states that, under risk neutrality, the gain from borrowing a low interest rate currency and investing in a higher interest rate one will, in equilibrium, be matched by an equally large expected loss by a depreciation Read more…
US On Friday, the biggest revision (since 1999) in Global Industry Classification Standard took place. The new communications sector now include AT&T, Verizon, Century Link, Comcast, 21st Century Fox, Netflix, Walt Disney and, recent entrants, Alphabet and Facebook. Consequently, the Telecom sector which represented 2% of the S&P 500, will Read more…
US Over the course of this week several key US data were released. On Tuesday, the Institute for Supply Management’s Manufacturing PMI was released: it fell to 57.3 from the previous month’s 59.3 and missing market expectations of 58.3. On Wednesday, the Federal Open Market Committee (FOMC) left its target Read more…
Introduction In this paper, we will try to explain what are the Euro Interbank Offered Rate (Euribor) and Euro OverNight Index Average (Eonia) rates, what drives the spread between them and specifically why this was the case during the 2008 financial crisis. Euro Interbank Offered Rate (Euribor) rates are the Read more…
Correlation of 10y US Treasuries with Stock Market On April 25th, the yield on the 10-year US Treasury note broke above the psychologically important 3% threshold for the first time since 2014. The yield’s high for the day was 3.033%, meaning it was just short of 3.05%, which would have Read more…
US This week, US equities have shown an increase in volatility: on Tuesday 24th, following the breakthrough of the psychological barrier of 3% in the yield of 10y US treasuries, the most important US indexes S&P 500/DOW JONES 30 and Nasdaq 100 have lost about 2% each. On the same Read more…
Introduction Trade wars and tit-for-tat tariff threats between the two largest national economies should not be expected in a world embracing trade integration and common regulation through institutions such as the World Trade Organisation (WTO). However, this is exactly what we are currently observing in a US-led, politically motivated upheaval Read more…
The CDS Market Until 2008, credit default swap (CDS) markets have grown exponentially since their emergence in the late 1990s but shrunk considerably to an estimated outstanding notional value of $9.6 trillion in 2017. Despite deliberate efforts by the International Swaps and Derivatives Association (ISDA) and market participants on both Read more…
Introduction Information has always been one of the main sources of alpha on the market. Centuries ago just having first-hand information about the outcome of a war could very well constitute an important edge over others, the famous speculation of Nathan Rothschild on the Battle of Waterloo comes to mind. Read more…
In this article, we will develop an investment strategy on currency, specifically on the USD/CHF pair. We will: Introduce the currency carry trade (for those familiar with it, you are welcomed to skip this brief explanation) Review the developments in the Switzerland economy, and move to the current environment Read more…
US This week, US equities ended on a low note as the market kept a close watch on rising UST yields and Apple was a drag on the tech sector. The benchmark 10-year yield rose to its highest level in four years. The three major equity indices still managed to Read more…
Introduction on TIPS and Gold as inflation hedge Generally, an assets is considered t o be an “inflation hedge” if either its purchasing power is maintained over the long run or its nominal returns closely track realized inflation over shorter horizons. Gold and TIPS fall into this category and are Read more…
Differences between historical realized volatility and option implied volatility has for long been known as a potential indicator for volatility mispricing. To our knowledge, the first well-known academic study on the topic was conducted by Goyal and Saretto in 2009 and published as the paper ‘Cross-section of Option Returns and Read more…
US Over the course of last week, the most important data concerning the United States came out on Friday 14th, when the University of Michigan’s Consumer Sentiment was released. The Consumer Sentiment was 97.8, below the consensus 100.5 and the previous 101.4. This drop seems to due to concerns about Read more…
In the current increasing interest rate environment, the debate about the controversial but nevertheless important benchmark has sparked off again. This is why, we thought it relevant to provide in the following article a refresher on the history and functioning of the London Interbank Offered Rate, as well as examine Read more…