One of the topics that comes up whenever government bond curves re-price is the relationship between the yield curve and bank net interest margins (NIM).
I think that’s a signal I need to rewrite that bit. The present value of fixed coupon loans drops if the discount rate rises. The swap position makes money if interest rates rise. You just adjust the position size so that those two effects cancel out.
Only references I could think of would be a primer to interest rate hedging. I can’t think of any, but probably easy to search for.
i'm not sure i understand this part: "the synthetic short bond position would act to cancel out the duration of fixed coupon assets."
i can grasp the contours, obviously, but i can't fully imagine the canceling out. is there a good reference to pursue further?
I think that’s a signal I need to rewrite that bit. The present value of fixed coupon loans drops if the discount rate rises. The swap position makes money if interest rates rise. You just adjust the position size so that those two effects cancel out.
Only references I could think of would be a primer to interest rate hedging. I can’t think of any, but probably easy to search for.