For a long-term, zero-coupon bond, which of the following factors contributes to the heightened difference between the bond’s yield convexity and curve convexity?

1. A flat yield curve
2. A price at or near par
3. A long time to maturity

Solution

C is correct. The difference between a zero-coupon bond’s yield convexity and curve convexity is heightened when the yield curve is not flat, the bond is priced at a significant discount or premium, and the bond has a long time to maturity.

A is incorrect because the difference between the bond’s yield convexity and curve convexity is heightened when the yield curve is not flat.

B is incorrect because the difference between the bond’s yield convexity and curve convexity is heightened when the bond is priced at a significant discount or premium (not when it is priced at or near par).

Understanding Fixed-Income Risk and Return Learning Outcome

1. Calculate and interpret approximate convexity and distinguish between approximate and effective convexity

Can some please explain correct answer C in more detail?

So, the standard formula for a (linear) Change in Price of Bond for a 1% Change in Yield is:

–Modified Duration × ∆Yield

In Reading 18 (LOSd/Example 5), the text gives the (non-linear) Change in Price of Bond based on Investor’s Yield & Yield Spread View as:

[–MD × ∆Yield] + [½ × Convexity × (∆Yield)^(2)]

I'm finding it difficult to find details on when exactly non-linearity the second term (i.e. convexity) is relevant in the calculation of price change. I'm thinking its to do with periodicity and expectations (italics above) - convexity is only relevant during a period of time over which the change in yield is not certain and not when considering only a (given) 1% change in yields at a specific point in time and a certain yield change (i.e. 1%). But hoping someone can confirm/correct this logic.

Thanks in advanced.

Wanted to make a clarification on the relationship between convexity, yields, and coupon rate. Why is it that lower yields and coupons lead to higher convexity while longer tenor leads to higher convexity? Don't longer tenor bonds demand higher yields (and, thus, would see these higher yields correspond to greater convexity)?

“As rates fall, the futures price rises, but it starts tracking a lower duration bond. As rates rise, the futures price starts tracking a high duration bond. This switching of the underlying asset gives the futures price negative convexity.”

Can someone ELI5 this statement?

There comes a point in any big selloff in Treasury bonds when the move becomes so pronounced that it starts to feed on itself. Increases in yields force a crucial group of investors to sell Treasuries, which in turn leads to further increases in yields. Two months into this rout, that moment appears to have arrived, and it’s beginning to send shudders throughout all corners of U.S. financial markets.

The forced sellers are investors in the $7 trillion mortgage-backed bond market. Their problem is that when Treasury yields -- which strongly influence home-loan rates -- suddenly rise sharply, many Americans lose interest in refinancing their old mortgages. A reduced stream of refinancings means mortgage-bond investors are left waiting for longer to collect payments on their investments. The longer the wait, the more financial pain they feel as they watch market rates climb higher without being able to take advantage of them. Their answer: unload the Treasury bonds they hold with long maturities or adjust derivatives positions -- a phenomenon known as convexity hedging -- to compensate for the unexpected jump in duration on their mortgage portfolios. The extra selling just as the market just as the market is already weakening has a history of exacerbating upward moves in Treasury yields -- including during major “convexity events” in 1994 and 2003.

Read more at: https://www.bloombergquint.com/onweb/convexity-hedging-haunts-markets-already-reeling-from-bond-rout Copyright © BloombergQuint

This go around, the Federal Reserve’s massive presence in the mortgage-bond market -- it’s adding about $40 billion of the securities each month to its balance sheet -- has created something of a stabilizing force that has kept the market’s hedging needs in check. Even so, waves of mortgage investors adjusting their portfolios could still have an outsized impact on rates that reverberates across asset classes, market watchers say. “Everyone -- except the Fed -- is a convexity hedger at some point because as your portfolio keeps getting longer with the rise in rates it will become increasingly painful,” said Joshua Younger, head of U.S. interest-rate derivatives strategy at JPMorgan Chase & Co. “There’s more flexibility now for those who need to hedge so rates rising won’t cause the train to go off the rails. But even a train on the rails can be difficult to stop.”

Ten-year Treasury yields surged as much as 0.23 percentage point to a more than one year high of

Interesting mechanics impacting bond markets and, specifically, MBS portfolios. This is one of the reasons I invest in the asset class indirectly: let the respective mgmt teams deal with it.

As US bonds fall and 10y rises, this pushes mortgages rates higher slowing / stopping refinancing activities, which increases the duration of existing MBS portfolios that hold 15-30y notes. This duration increase forces the portfolios to hold lower interest assets longer while they lose value to the rising rates. The hedges that offset this mechanic accelerates the downward pressure on bond prices and serves as a feedback loop.

https://www.bloomberg.com/news/articles/2021-02-25/convexity-hedging-haunts-markets-already-reeling-from-bond-rout

p.s.: R.I.P. any risk-parity traders doing the UPRO/TMF play or similar strategy dependent on correlations holding.

I'm trying to figure something out but the information I've found online so far hasn't been exactly helpful to me.

I'm interested in comparing two bond issues that have different maturities and different coupons. This is useful to me but it may very well be useful to others in a similar situation.
(sidebar: I haven't found any tools where you can compare the convexity curve of two issues, if anyone wants to build that website).

First question:
One of the bonds has shorter maturity but smaller coupon payments. The other one has longer maturity but bigger coupon payments.

Are the interest rate sensitivity benefits of a shorter maturity issue generally offset by its smaller coupon?

(I can get into specifics in the comments but I want to keep the question broad for the benefit of future readers.)

Second question:

When looking at the sensitivity and convexity of a bond you are supposed to consider an increase or a decrease in interest rates (to calculate approximate variation in bond market price), but
it's not immediately clear to me which rate I should be looking at:

Prevailing interest rates for that issuer?
Prevailing interest rates for that issuer's country?
Prevailing interest rates for US Treasuries? (Current 10Y yield?)

After doing some practice problems it seems that only sometimes bond convexity is adjusted by half for the following equation...

% change in price = -duration*(yield change) + (1/2)(convexity)(yield change)^2

While working through some practice problems it seem like its the (1/2) is not always included. Is there an change made to the material from past mock exams or am I missing something?

I was wondering what r/investing thought of their definition of "financial literacy" and the talk on bond convexity.

I have a trouble following all the talk on bond prices and the debate over the market setting rates compared to the Fed.

They also define financial literacy as learning about the potential of money or the relation of risk to potential at the beginning. They try to compare their definition to understanding about credit card rates, opening a bank account, and student loan debt.

What would r/investing's definition of financial literacy be? compared to r/personalfinance, r/options, r/wallstreetbets?

Video: https://www.youtube.com/watch?v=-gBin0Z7Y_0

Edit: Bond Convexity is at ~22:40

The reading states the formula as:

> change in full bond price = -annual ModDur * dYTM + 1/2 annual convexity * (dYTM)^2

However, Investopedia states the formula as

> total price change = -duration * dYTM + convexity * (dYTM)^2

where convexity is not multiplied by half. And then in practice problem #13 the solution says:

> total estimated price change = duration effect + convexity effect = (-10.5 * -0.02) + (97.3 * -0.02 * 2) = 0.21 + 0.0389

where the negative sign in the convexity effect completely disappears and the formula is different from the one in the readings, even though the solution to problem #12 states

> convexity effect = 1/2 * convexity * (dYTM)^2

So there are like three different versions of the formula going around. Which is the right one? I'm hella confused.

Can someone please walk me through the process? I'm having a hard time understanding whether or not you re-calculate OAS for V- and V+... Have gotten conflicting answers now. For example, V+ is based on adding 50 bps say, do you recalculate the OAS or just use the old one (would it even change)?

I understand backwards induction, no need to explain that.

Tl;dr Russia is where capital must flow to quell energy-related inflation, whether we like it or not.

The global balance of payments problem must be offset by the inflow of real goods and services from areas with low inflation (Russia), into areas with high inflation (Eurozone).

Supply of Chinese commodities (as noted in this sub) is being curtailed due to high energy costs. Industrial energy prices may even proliferate if dry weather conditions persist within China, dampening their capacity for hydroelectricity production.

Couple these factors with a cold Winter in Europe and a high rate of inflation (Eur is a USD derivative with 2nd-order convexity due to Eurodollar rehypothecation), and you must inevitably see outsized inflation in the current low-interest rate environment. The Euro is highly-highly levered, and thus is set to continue depreciation due to stagnation in the flows of the real economy.

To quell this balance of payments problem and reduce the rate of inflation in Europe (without raising rates in any meaningful way and dislocating the global credit market), Russian commodities must enter the Eurozone ASAP.

This means Biden’s hands are tied: he can’t rely upon monetary supply to increase the flow of Russian goods (Russia already sold most of their US government bonds), and the fed can’t raise rates quickly enough to ease the inflation, which as noted above, is due to a systemic balance of payments problem exacerbated by global debt:gdp.

I conclude that exporting Eurozone inflation to Russia and other regional commodity producers is the only method by which capital can normalize and redistribute inflation more evenly in the global economy.

I am currently long Russian equities, which are at historically low valuations, with depressed P/Es across the board despite strong balance sheets and a wealth of hard assets.

To reiterate: balance of payments can only be solved by the flow of real goods and services into Europe at below the current marginal cost of production. Russia and other emerging market commodity producers provide this function. With this in mind, I maintain that they are undervalued. Additionally, Russian equities have additional upside due to mis-priced political risk.

-VanEck Russia: PE 7.69 (+10% in the last 5 years!) and YoY -2.88%

-XME SP Metals ETF: PE 41.67 (+24.36% in the last five years) and YoY +22.29%.

Edit:

From my comment below: “I highly recommend giving this interview with Luke Gromen a watch. It does

Simplex Trading, LLC held the largest reported GME put position at over 82k contracts until the Jul 16 expiry, yet very little DD has been written on the firm, until now. Simplex misfiled their 13F earlier this year and highlighted the cost basis of their 82k puts was only 0.16. Given this cost basis, and their overall position, it is clear their option position is a hedge against a non-reported OTC derivative contract known as a variance swap (VS). While the math in this post will be complex at times, I hope to break it down to make it simple to understand what a VS is and what the Value at Risk (VaR) implications are without needing to fully understand how the math behind these calculations work. I'm going to try to keep things simplex. I am not a financial advisor, this is not financial advice, and I will highlight what is speculative when applicable. This post should help you understand how GME, a mid cap stock with a mere $16 billion market cap, is an idiosyncratic risk to financial stability and capable of causing a systemically catastrophic market event due to overleveraged short exposure on both the price and the volatility of the stonk.

The direct registration of GME shares has already started to significantly impact the price of GME, and is the most critical aspect of the 🚀 launching successfully. The flight path to the 🌙 is set, but a sudden decline in DRS would potentially choke off the fuel supply needed to exit the atmosphere, and may cause GME to come crashing back down to earth. This is not FUD, DRS is the way, and if you are not familiar with directly registering GME in your name or how to directly purchase GME shares, please read A Complete Guide to Computershare first. Seats in the 🚀 start at $25, however, tickets are limited and supply is running out. Buckle up, the launch countdown has started, and there will be turbulence after liftoff.

**TA;DR - In late Jan 2021, someone purchased variance swaps on GME after the buy button was removed and volatility peaked. Simplex Trading was one of many VS sellers and still holds open risk exposure to GME volatility. DRS has impacted GME prices by decreasing the supply of shares needed to effectively suppress volatility, and accelerated the timeframe of the buying/selling cycles. The consistent rate of GME DRS has started a countdown to

The Intelligent Asset Allocator by William Bernstein

• In the long run of investing, you are compensated for taking risks
  • Conversely, if you seek safety, your returns will be low
• Experienced investors understand risk and reward are intertwined
  • One of the easiest ways to spot investment fraud is the promise of excessive returns with low risk
• One sign of a dangerously overbought market is a generalized underappreciation of the risks
• Nonsystematic Risk – Risk that disappears with diversification
• Systematic Risk – Risk that cannot be diversified away
• Stock are to be held for the long term.
• Individual investors are drawn into stocks during powerful bull markets
  • They don't appreciate the risks with stocks. And after they have suffered the inevitable loss, they sell.
    • No investor ever avoids loses at times, no matter how skilled
• REIT's and Precious Metals stocks can have a place in a portfolio even if they have lower expected returns
  • They are inflation hedges and likely to do well in an inflationary environment in which other stocks and bonds would be adversely affected
• The best way to estimate future stock returns is the DDM (Dividend Discount Method)
  • Return = Dividend Yield + Dividend Growth Rate + Multiple Change
    • Dividend yield is the yield on the investment (Example – 2020 S+P 500 yield is 1.5%). The Dividend growth rate is historically 5%. And the Multiple change refers to the increase or decrease in the overall P/E ratio.
    • The Dividend yield and dividend growth rate is the fundamental return (easy to estimate). The Multiple change is the speculative return (impossible to estimate).
      • Benjamin Graham – "In the short run the stock market is a voting machine (speculative return), but in the long run, it is a weighing machine (fundamental return).
• Do not expect high returns without high risk. Do not expect safety without correspondingly low returns
• The longer a risky asset is held, the less chance of a poor result
• Those who are ignorant of investment history are bound to repeat its mistakes
• Dividing your portfolio between assets with uncorrelated results increases returns while decreasing risks. Most important concept in portfolio theory
  • Two assets with positive returns should not have persistent highly negative correlations.
    • Mixing assets with uncorrelated returns reduces risk. You can find these.
      • In the long run though, meaningful negative (inverse)

I'm struggling with figuring out the bond allocation in my portfolio. Currently it sits around 3%. I think with the very high likelihood of rising rates, putting a bunch of money in bonds right now seems like a sure bet to lose money. I don't see the US going negative on interest rates, but what do i know...

Warren B likes to think of equities or bonds as a note with a "bunch of coupons" attached to them. Granted there is more volatility in stocks. That got me thinking, what about something like a BDC company? They have 6-10% coupons right now. Is that a better "fixed income" portion of the portfolio than traditional bonds right now? Or something else that is bond-like? I think about HYSA too, but at 0.5% rates, I'm basically losing to inflation.

I'm a retail investor who mostly follows the boglehead strategy. I aspire to hold the global market portfolio, but instead I hold something like 90% stock because I'm young and have a high risk tolerance. I.e. the standard textbook reason. But I subscribe to the efficient market hypothesis, and I am painfully aware of my dissonance -- a truly passive investor would be in approximately 55% BNDW 45% VT. The intent of this post is to poke at that dissonance.

Why is there so much demand for bonds, over and above what their risk-adjusted return can justify? What am I missing?

Puzzle pieces I've collected so far:

• Long term bonds are competitive with stocks, at least in a falling rate environment.
• Very low interest bonds have a better inverse correlation with stocks, than higher interest rate bonds
• Ultra short term treasuries are better stores of liquidity for large companies, than large piles of USD.

What I still don't understand, at all:

• An explanation for why one would hold corporate bonds rather than a mix of treasuries and stocks, when the latter would have higher risk adjusted return.
• An explanation for why accumulation-phase investors would hold short or medium term treasuries for their inverse correlation with stocks, rather than a smaller amount of a longer term treasury, when the latter would have higher risk adjusted return.

I have had people propose two different explanations for this, to me.

• Many institutional investors exist, who are contractually required to deal solely in bonds. I.e. regulation is causing a market inefficiency. I don't really buy this, for a couple reasons.
• Leveraging into a more broadly diversified portfolio leads to higher risk adjusted return, for the same total risk, than tilting the same portfolio toward stocks. I don't really buy this on the basis that I have a failure of imagination -- how could there be that many people holding cash, to provide the leverage?

What am I missing?

Why is convexity?

I've been googling and youtubing for over an hour and I can't find out why convexity exists.

Is it a phenomena? Are we just taking it as a given that it exists? Yes we can measure and calculate it, but why does it exist, how did it come into existence? Is there a convexity god?

Report Overview

• Bitcoin Metrics
• Market Update
• Major News
• NEWBIES lesson of the day: Bitcoin Math (lesson 4)

https://preview.redd.it/gjcwli26dda81.png?width=750&format=png&auto=webp&s=6e2e1d80f157ee680b2a7242d96be881c96f1b0b

Intro

I planned to cover the Electric Capital Developer Report today, but the market doldrums are calling everyone’s attention. So, instead, the report will cover some TA and On-Chain Metrics to explore what pressures are affecting the crypto market. So, I’ll leave the Developer report for Monday.

Insight: Supply and Demand for Bitcoin

Another down day.

The market continues its struggles amidst the U.S. Jobless Rate report that saw unemployment fall to 4% and wages jump in what adds pressure on the FED to raise interest rates in March. More workers plus higher wages are not a good combination when fighting inflation. As a result, bonds are beginning to sell off too. In addition, on January 12th, the YoY Inflation Rate report will be released and will likely support the same theses.

Bitcoin is testing the 42k support (yellow) on the daily chart below. My reports have been calling for a test of this price since early December. A fast break of this vital support will have me worried about a continuing bull run. On the other hand, several retests of the support will keep me optimistic, especially if some altcoins continue to run during that period.

https://preview.redd.it/q05vaye8dda81.png?width=800&format=png&auto=webp&s=b0d91ccffb991f261cda1fac12a8b642bc6732ab

Long liquidations of leveraged positions remain high (green bars), further adding downward price pressure on Bitcoin. The long liquidations are positive as an increase of leveraged short positions could aid in a possible short squeeze scenario. The market needs to capitulate (increase fear) amongst retail traders before the big players make a run.

https://preview.redd.it/l1comqyadda81.png?width=800&format=png&auto=webp&s=9843073878ff428f77d304c71ece032ca564c03e

The reserve on exchanges continues to fall despite the selloffs. This metric would increase if market participants moved Bitcoin into exchanges to sell, but that is not the case. In addition, the illiquid supply has been growing, signaling that intelligent money is collecting BTC on dips. These metrics are laying out the fact that supply is decreasing in the supply and demand structure.

https://preview.redd.it/0efwg7scdda8

I have just renewed my old post, which is very misleading, my apologies. I also want to thank picodeltoro and Willing_Fig_9235 for their help and suggestion.

Here is my question.

In FI immunization, we have a target of hedging the interest rate change. Say we have an asset portfolio, and multiple liabilities, and we have made sure that their PV, BVPV, and convexity are matched, but would that be enough?

We are hedging the interest rate changes, my difficulty is, what is this interest rate actually. Is is the yield of the government bonds? I will assume the answer is yes, but all these durations (Mac, Mod, Eff, Key rate, BVPV, Money) and convexities are sensitive to not direct interest rate change, but either the benchmarks' yield change or the bonds' yield change. And how will an interest rate change affect the yield change? Because I am not sure when a interest rate changes, the yield of assets and liabilities will change in the same magnitude. And I am also not sure when we expect a interest rate change, how do we know the magnitude of out yield change.

Or maybe the answer is no, which means the interest rate we are hedging is something else?

Intro

A frequent question on this sub is whether bonds have any place in an accumulator's portfolio. Setting aside the currently en vogue idea of a bond tent (which is a weak asset allocation move of dubious value), many investors here take the view that can be crudely summarized as "stocks have a higher expected return with higher volatility, the volatility is reduced by a long time horizon, I can stomach the volatility, therefore I should be 100% stocks." Another poster has tackled the specific fallacy of volatility being reduced over the long term, but I thought I'd give some attention to bonds to highlight ways they may still have utility for the accumulator.

A Brief Note on Total Return

If you Google "BND" to find the return of the Vanguard Total Bond Market ETF since inception, you'll see that the price has gone up a whopping 15% since inception in Spring 2007. Not 15% per year, but 15% overall. Google and Yahoo Finance, however, only report the market price of assets you search. Bonds and bond funds return the vast majority of their value as coupon payments. It's a simplification, but think of coupon payments as bond dividends. Google and Yahoo Finance do not include re-invested dividends, and should not be used for historical analysis of total return. If we look at Portfolio Visualizer's result for BND since inception, we see the more accurate 68% total return for that period.

All values used for the rest of this post will be total returns in real, inflation-adjusted terms.

The Luxury of a High Savings Rate

One simple reason putting bonds

I have been increasingly concerned about the seemingly positive daily correlation between stocks and bonds of late - with both going down together. Now while this could be chalked up simply to short term volatility, anyone running a HFEA style levered risk parity strategy should be thinking about the possibility of high and positive stock-bond correlations, which can happen when inflation runs hot. This is especially dangerous given relatively high US stock market valuations and hedge funds running levered risk parity causing liquidity crunches when they have to degross in market downturns.

If inflation does turn out to be transitory and we return quickly to a disinflationary regime with negative to low stock-bond correlations then this discussion will be moot. But in case this doesn't happen for years, I wanted to raise a discussion about potential alternatives to TMF for portfolio protection.

In his excellent book "Safe Haven Investing", Mark Spitznagel (of Universa fame which returned 4000% during Q1 2020) describes the ideal characteristics of a risk mitigation strategy - namely that any risk mitigation strategy should be cost effective, and allow us to take more risk with the rest of the portfolio (thus resulting in a higher portfolio CAGR).

In the book, he compares several models of risk mitigation strategies and compares them head to head: the best performing one is the insurance model. In order for insurance to work, it needs to be 1) capital efficient (require only a small allocation), and 2) highly convex such that in a crash it returns multiples of the downturn.

One potential approach to take is to hold a constant small allocation to far OTM put options, selecting strikes and expiries such that the portfolio will be totally protected or even profitable in a crash greater than, say 30%. The puts are rebalanced regularly. The downside of course is that you will have a drag on the portfolio for long stretches based on the allocation (1-2% of the portfolio).

Has anyone looked at the performance of this type of insurance strategy when combined with UPRO, or even added to a standard UPRO-TMF combo? I don't know how to backtest options strategies so I don't have any results yet but curious if anyone else has been thinking along the same lines.

EDI

Chainlink News and Announcements

• Unlocking Cross-Chain Smart Contract Innovation With CCIP

In his recent Future of Chainlink presentation, @SergeyNazarov explored how the Cross-Chain Interoperability Protocol (CCIP) will power cross-chain innovation & an entirely new category of smart contracts.

• Liquity Uses Chainlink Price Feeds to Help Secure $2.7B TVL

By leveraging Chainlink Price Feeds, @LiquityProtocol is able to offer users a secure borrowing experience.

In this case study, explore how Liquity uses Price Feeds to help secure $2.7B+ through its protocol while preserving its governance-free model.

• Chainlink Proof of Reserve: Bridging DeFi, CeFi, and Traditional Finance

Join us for a Chainlink Tech Talk with @gemini on Jan 31.

We'll be diving into Gemini’s use of Chainlink Proof of Reserve (PoR) for its Wrapped Filecoin (EFIL) and how PoR is expanding the DeFi design space.

Chainlink Labs Updates

• Chainlink Labs is a remote first workplace - featured on CNBC

Chainlink Labs has been a remote first and work from anywhere environment from the start. If you're interested in decentralized infrastructure's ability to reinvent industries and solve society's problems, we want to hear from you: https://chainlinklabs.com/jobs

• Chainlink Labs is Hiring

The blockchain industry has the potential to solve some of society’s most fundamental problems.

If you want to help build a fair world backed by definitive truth, consider working at Chainlink Labs.

Check out the open roles: https://chainlinklabs.com/careers

Chainlink Grants

• C02 Labs Receives Chainlink Grant to Build Web Application to Foster Mining Industry ESG Compliance

We're excited to award C02 Labs with a grant to develop a web application that uses Chainlink or

I might have missed a point, but I don't really understand why a barbell portfolio has more convexity than an bullet portfolio. Same question for butterflies:

Long barbell, short bullet -> positive convexity vice versa

Is it enough to know, that a barbelled portfolio has more convexity than a bulleted portfolio or do we have to understand the rationale behind this? Anyways, I'd be happy to understand it.

Thanks

For those of you familiar with Burry's 20 year treasury short through puts on TLT, how are you thinking about the timing of a potential TLT sell-off?

I am thinking 6 months so January or March put options as ideal, and after that, if you get it wrong probably just call it a loss based on the following:

-2020's September through December CPI inflation reads were a meager 0.1% to 0.2% per month which means it takes little for CPI to jump to >6% year over year if inflation reads stay elevated in the 0.3%-0.5% per month range since you'll add in that spread as you progress toward December on a YoY basis.

-PPI (leading indicator) jumped to 7.8% last report

-Shelter inflation reporting lags 4-15 months so we should start to see surges there through January /March as home prices are up 20% YoY and rent is up 15% YoY

-Treasury and MBS purchases of $1.2 trillion p.a. by the Fed should stop by then, so there needs to be incremental buyers of $1.2 trillion to support the current price levels, which of course implies a drop.

-If the democrats spending package gets passed along with the infrastructure package, we'd be talking aggregate (including the former 1.2) new issuance seeking a buyer of potentially $2trillion per annum (depends on timing of all the spending so I just have to estimate for now)

-If after all this shit flows through you still haven't made money shorting treasuries, just go back to your day job and collect the tax loss

For those of you who actually put on Burry's treasury short, my guess is that you're in a lot of pain right now. When people say don't fight the Fed... this is a perfect example.

What do you guys think about the validity of this position, timing, catalysts, and potential for 20 year yields to reprice to something >3%?

The short answer is that there is no "single" optimum even for a buy-and-hold strategy because different allocations suit different risk profiles better. Hedgefundie's 55/45 suited their own appetite, although it may not be suitable for others (you could be more or less volatility-averse).

For the long answer, we can consider various metrics - organized below by percentage of allocation to gold between 0% to 30% in the tables below. Because there's a lot of human-readable data, as a benchmark for convenience I've highlighted the row with maximum Sortino Ratio (again, this isn't "the best" choice for everyone) per table:

0% Gold

10% Gold

20% Gold

30% Gold

(I stopped at this point because the performance metrics I gathered - CAGR, Stdev, Max DD, and SR - all started becoming increasingly worse with higher percentages in gold. I wouldn't be surprised if they're convex functions of allocation %. But hey, maybe we hav

Overview

About your author: CryptoQuestion is an independent platform providing free resources for cryptocurrency investors. From an on-demand Q&A service to online courses, from our weekly Moonshot Monday podcast to our weekly Staking and Farming Review. Visit us at www.cryptoquestion.tech

We started the year by conducting a top down review of all the platforms on our list. We removed Venus as we believe they don’t offer investors anything special, for example you can stake CAKE on Pancakeswap and earn a considerably higher APR. We also added two new platforms from the ‘DeFi 2.0’ contingent, namely Olympus DAO, the reserve currency and Convex Finance.

There are some juicy Staking APRs available from both the centralized exchanges and DEXs including 32% for staking EOS with Kucoin, 23% for staking KAVA with Kraken and 65% for staking CAKE on Pancakeswap. The meanest staking reward was a measly 0.25% for staking Bitcoin on Kraken.

Amongst the most generous farming rewards were Harvest’s 2,359% for MEME20-ETH and Pancakeswap’s 1,197% for INSUR-BNB.

This week we are also reviewing three platforms that have emerged from what is called DeFi 2.0.

This week’s APRs from leading staking and yield farming platforms

There is one thing we would like to draw to your attention. We noticed that more and more platforms are restricting US users. This could be highly inconvenient if this happens after you have invested. We would suggest as a US investor you tread very cautiously when entering this market in these very uncertain times.

Platform Review

This week we are taking a look at the phenomenon which is what has become known as DeFi 2.0. DeFi 2.0 is really only a refinement of all the original DeFi protocols aimed at improving user experience, increasing liquidity and reducing transaction fees (gas) and increasing transaction speed.

The one platform that has taken much of the credit for leading the way in the DeFi 2.0 revolution is Olympus DAO with its OHM token. OHM has spawned a number of copies or forks known as OHM forks, the main ones are Wonderland Abracadabra and Convex Finance.

The market value of these platforms have exploded exceeding over $7 billion. There have been hundreds of copycat platforms, mostly anonymous teams and plenty of rug pulls.

Olympus

I don't want to step on anybody's toes here, but the amount of non-dad jokes here in this subreddit really annoys me. First of all, dad jokes CAN be NSFW, it clearly says so in the sub rules. Secondly, it doesn't automatically make it a dad joke if it's from a conversation between you and your child. Most importantly, the jokes that your CHILDREN tell YOU are not dad jokes. The point of a dad joke is that it's so cheesy only a dad who's trying to be funny would make such a joke. That's it. They are stupid plays on words, lame puns and so on. There has to be a clever pun or wordplay for it to be considered a dad joke.

Again, to all the fellow dads, I apologise if I'm sounding too harsh. But I just needed to get it off my chest.

Only cryptocurrencies (S&P Broad Cryptocurrency Index +58%) outperformed commodities (S&P GSCI, +40%) as an asset class last year, and even then, some commodities outperformed crypto (e.g. TTF +243%) yet commodities failed to benefit from the same money inflows. While this year is off to another strong start for commodities (+5%), the relative setup on valuations is unprecedented. In absolute terms, equity markets are above the 95th percentile across many valuation metrics, while bond convexity is just off all-time highs. When valuations were last this stretched, equity duration was similarly high during the dot-com boom but 10yr UST’s were above 6.5% with much lower convexity and headline inflation of just 3.7% versus 7% today, making this effectively the most risky macro environment for financial assets in a generation. This risk is set against a backdrop of extremely dislocated commodity markets, with forward balances showing further draws in many commodities, from an already low starting point for stocks.

https://street-guru.com/opinion/commodities-are-set-for-another-year-of-outperformance_20220113_637/

Upro for me :)

Sorry for the simple question. I think I got conflicting info from MM vs online readings or I've misunderstood somewhere.

higher dispersion of cash flow around duration year = greater convexity of bond

Does "higher dispersion of cash flow" means the more spread out the coupon payments are around duration year?

I think if someone could answer the below two questions, it would help greatly.

Does a 5 year semi annual coupon bond with a duration of 3 have a higher dispersion than a 7 year monthly coupon with a duration of 3 because the 5 year has cash flows that are spread out wider in time from t=3?

also, this really messed me up: zero coupon bonds. will a 10 yr ZCB have a lower or higher dispersion than a coupon bond with duration of 10? I've read online that ZCB has the highest convexity, but the dispersion of a ZCB would be 0 isn't it? since the one cash flow occurs ON maturity date, which is its duration.

Confused!

Edit: I am on reading 11 and haven't read the rest of the material yet, apologies if this is explained in other readings