Friday, June 13, 2014

what departments use the yield curve

In one mkt risk system, the USD (no other currencies!) yc is used to compute FX swap points. That's the only usage of the yc in that system.

Why some large investment banks have a sizable IT team supporting the yield curve(s) and update it a few times a day? I was told

... that a big user is the IRS desk. IRS contracts last many years. A portfolio may be highly sensitive to the interest rate at some point on the yc. A small shift of the yc may tip the entire portfolio from ITM to OTM. Note ITM/OTM is always for the swap dealer.

I feel if a portfolio is sensitive to the yc, then the trader needs up-to-the-hour yc to help guide his quoting and trading decisions.

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New York (Time Square), NY, United States
http://www.linkedin.com/in/tanbin