Rate accompli: Are rising interest rates bad for all assets?
Many Happy Returns
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Is Interest Rate Swaps a Leverage Profit?
Interest rate swaps are a way to gamble on the direction of interest rates. They're hugely leveraged and you can win big with these but also lose big. The danger comes when rates are very volatile because it's the volatility the daily movements and yields which makes people have to post more collateral. No one foresaw that that would happen. We've already seen pension funds had to start posting massive amounts of collateral they didn't have enough cash to do that. Is there going to be other things that start shaking out if rates keep increasing? I could just see Andrew Bailey as a zookeeper. I could see him being eaten by the tigers a hearty lunch for them.
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