Jun 112021
 

An interest rate swap is a deal between two investors. One has his money in a product paying a fixed rate of interest, such as a government bond; the other in a variable rate instrument that pays out in line with short-term interest rates. To hedge against future interest rate movements, the investors may agree to ‘swap’ the interest payments they get. For example, banks tend to have liabilities, such as deposits, that pay out at variable rates, but assets that receive a fixed return. That makes them vulnerable to rising short-term rates and so they may want to shield themselves by swapping their fixed interest for variable income. ‘Swaps’ are closely watched as an indicator of where markets think interest rates are heading.

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May 132021
 

A specific type of mortgage backed security. With IO strips interest is received by investors only on any outstanding principal in the mortgage pool. So, as interest rates rise, prepayments on the mortgages fall and the value of IO strips tends to rise (because interest is received on a greater expected principal amount)

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May 042021
 

Mutual funds, banks, insurance companies, pension funds and others that buy and sell stocks and bonds in large volumes

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