Interest rate risk refers to the potential for losses due to the movement of the risk-free curve, which is largely driven by the central bank policy rate and its expected future path.
Looking forward to the manuscript - I learn something new with each read.
In your section on Hedging, you note ‘residential mortgages are typically fixed rate’, then go on to use the American 30-year as an outlier. My understanding is that most residential loans (European) are floating rate, which would align with the example?
Thank you for writing these articles btw. In my opinion, the banking and finance sector has an unintuitive foundation compared to a layman’s understanding of a loan, and your write-ups allow for a better grasp (even if just fingertips) of what actually happens when institutions extend credit.
Canadian fixed is 5 years (10 years is theoretically available, but very expensive). UK “fixed” used to be 1 year, which I think qualifies as an ARM in the US. Australia was mainly floating when I looked along time ago. I vaguely recall some 10Y fixed rates existing in (non-UK) Europe.
This a great write-up Brian!
Thanks!
Looking forward to the manuscript - I learn something new with each read.
In your section on Hedging, you note ‘residential mortgages are typically fixed rate’, then go on to use the American 30-year as an outlier. My understanding is that most residential loans (European) are floating rate, which would align with the example?
Thank you for writing these articles btw. In my opinion, the banking and finance sector has an unintuitive foundation compared to a layman’s understanding of a loan, and your write-ups allow for a better grasp (even if just fingertips) of what actually happens when institutions extend credit.
Canadian fixed is 5 years (10 years is theoretically available, but very expensive). UK “fixed” used to be 1 year, which I think qualifies as an ARM in the US. Australia was mainly floating when I looked along time ago. I vaguely recall some 10Y fixed rates existing in (non-UK) Europe.