Trading the Yield Curve with Interest Rate Derivatives

The course explains how to use exchange-traded and over-the-counter (OTC) derivatives to profit from expected changes in the yield curve. Different derivative instruments are compared and contrasted in terms of their interest rate exposure and counterparty credit risk and their relative value is assessed as tools for expressing views about the future level and volatility of interest rates.

This course is provided through a partnership between ICE Education and the International Capital Markets Association (ICMA) Executive Education.

Course Information

Price £1,850 + VAT
Duration 2 days
Location London
Available Dates

Who Should Attend

Although no prior knowledge of interest rate derivatives is assumed, familiarity with the basic types of derivative security (forwards and futures, swaps and options) is recommended. Participants should have a basic understanding of fundamental financial market concepts such as present value and risk and return.

Booking Information

Tel: +44 (0) 20 7065 7706

Course Content

The course content is divided into several topic areas, which are then broken down into multiple subtopics:

1. Yield Curve Basics

  • Zero-coupon yields and discount factors
  • Building yield curves from market data

2. Factors Driving the Yield Curve / Trading the Yield Curve

  • Breakeven forward prices for outright trades
  • Risk-weighting of steepening, flattening and curvature trades

3. Bond Futures Basics

  • US Treasury note futures and on-the-run (OTR) US Treasury futures
  • Gross basis and net basis

4. Trading the Yield Curve with Bond Futures

  • Risk-weighted curvature trades with bond futures
  • Synthetic basis trades with OTR futures

5. Managing Interest Rate Risk with Bond Futures

  • Using bond futures to adjust portfolio duration
  • Ultra Treasury bond futures and liability-driven investing

6. Sovereign Yield Spread Futures

  • Contract specification
  • Margining, clearing and settlement
  • Trading sovereign yield spreads with sovereign yield spread futures

7. OTC Interest Rate Swaps

  • Hedging swaps with futures and government bonds
  • Swap pricing and revaluation

8. Swap Variations

  • Forward starting swaps
  • Constant maturity swaps (CMS)
  • Overnight index swaps (OIS)
  • Counterparty Credit Risk and Central Clearing
  • Collateralization and margination in the OTC market

9. Swap Futures

  • Contract specification
  • Margining, clearing and settlement
  • Trading swap futures

10. Trading the Yield Curve with Swaps

  • Steepening and flattening and curvature trades: vanilla swaps vs. CMS
  • Trading the swap spread
  • Ultra Treasury bond futures and the 30-year swap spread

11. Managing Interest Rate Risk with Swaps

  • Hedging with swaps and swap futures
  • Hedging a new bond issue with a forward starting swap

12. Caps, Floors and Swaptions

  • OTC interest rate caps and floors
  • OTC swaptions
  • Hedging and risk measures

13. Trading Views on Rates and Volatility with Caps, Floors and Swaptions Directional and Spread Trades

  • Volatility trades
  • Conditional steepening and flattening trades
  • Correlation trades

14. Options on Futures

  • Options on US Treasury note and bond futures
  • Trading views on rates and volatility with futures options
  • Mortgage hedging