PART IVYield Curves and Relative Value Trading

In this final part of the book, we look at how market participants such as primary dealers and fund managers analyse the yield curve as part of relative value and spread trading. In the first edition of this book, we covered the basic principles in Chapter 12, using the UK gilt market for illustration. These principles remain unchanged, so we have retained this chapter as is.

However, compared to the 1990s, when much of what inspired the writing of Chapter 12 was observed, while the principles remain unchanged, there are fewer and fewer opportunities to apply them. Hence we have dropped the first edition's other chapter on specific relative value trades such as butterfly and barbell trades. For this second edition, Kenneth Kortanek and Vladimir Medvedev apply a fine and accurate approach to relative value analysis in the US Treasury market, taking into account the paucity of genuine arbitrage relative value occurrences in what is a large and liquid market. There is also a reference to the authors’ website where readers can apply the techniques demonstrated in Chapter 13. This hopefully brings Part IV bang up to date!

Get Analysing and Interpreting the Yield Curve, 2nd Edition now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.