12 Aug 2024, 17:31 UTC≈1,990 viewsread 8 August 2026 Forwarded from @DissidentThoughtssPhoto
Dollar Swaps
A FX (forex; foreign exchange) swap is essentially a foreign currency loan secured by domestic currency collateral. You can think of it as an agreement to simultaneously borrow one currency and lend another at an initial date, then exchanging the amounts at maturity. It is useful for risk-free lending, as the swapped amounts are used as collateral for repayment.
There are two legs to every FX swap: fir…
12 Aug 2024, 17:31 UTC≈1,180 viewsread 8 August 2026 Forwarded from @DissidentThoughtssPhoto
Treasury Repo
A repo (short for repurchase) transaction involves the sale of assets with an agreement to buy them back (repurchase) them on a specified future date (usually overnight, o/n) at a prearranged price. Think of it as a cash loan secured by collateral - the pawn shop analogy is accurate.
The exhibits above (source) are very basic models of the dollar flows in repo. The collateral (usually Treasury securit…
12 Aug 2024, 17:31 UTC798 viewsread 8 August 2026 Forwarded from @DissidentThoughtssPhoto
Dollar Funding
On the left is a 2019 schematic of the U.S. dollar funding network. It still exists today in that same form, but volumes have grown significantly larger. It also omits the US stock market which, while not systemically critical, is certainly an example of a dollar market.
Dollar funding means trading (borrowing/lending) in dollar denominated terms. Entering a EUR/USD swap to borrow dollars using euros…
12 Aug 2024, 17:31 UTC719 viewsread 8 August 2026 Forwarded from @DissidentThoughtssVideo
Why Dollars?
After helping visualize the exceptional dominance of the US dollar, FedGuy (Joseph Wang) offers a few answers to the question "why?" in this video (taken from our series on the topic here):
• Enormous liquid market. Many foreign financial markets are not as developed (capable) or deep (liquid) as the dollar markets.
Small deposits (up to the $250k FDIC insurance guarantee) are going to be keep in a ba…
6 Aug 2024, 22:21 UTC642 viewsread 8 August 2026 Forwarded from @DissidentThoughtssPhoto
Implementing Basis Trades
Understanding sources of risk for basis trades and where stress can manifest requires understanding the technical details of how these trades are implemented.
The basis — or the profitability of a cash-futures basis trade — is characterized by the implied repo rate (IRR), which reflects the cost of carrying the security (including financing costs) until the futures contract's expiration.
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6 Aug 2024, 22:21 UTC426 viewsread 8 August 2026 Forwarded from @DissidentThoughtssPhoto
The Cash-Futures Basis Trade
In early 2018, a string of events formed an exploit in America’s sovereign debt market. Following a surge in Treasury issuance and regulatory reforms, asset managers (pension funds, mutual funds, and insurance companies) began to shift out of cash bonds and into long positions of their associated Treasury futures contracts.
A Treasury futures contract is a standardized agreement to buy …
6 Aug 2024, 22:20 UTC418 viewsread 8 August 2026 Forwarded from @DissidentThoughtssPhoto
Repo Financing
The repo market allows for relative value (RV) hedge funds engaged in the cash-futures basis trade to acquire significant leverage, thus generating correspondingly significant demand for cash Treasuries. This is called repo financing, or repo leverage.
For example, a hedge fund who wants to buy $100 in Treasuries can put down $1 of its own money and end up borrowing the remaining $99 in a repo transa…
6 Aug 2024, 22:20 UTC331 viewsread 8 August 2026 Forwarded from @DissidentThoughtssPhoto
Treasury Repo
We've covered what Treasury repo is and how it works, both in text and in a video series, but it's such a crucial piece to the modern financial system that it can't be reiterated enough. Fortunately, it's rather simple.
A repo (short for repurchase) transaction involves the sale of assets (collateral) with an agreement to buy them back (repurchase) on a specified future date (usually the next day) and…
5 Aug 2024, 12:01 UTC381 viewsread 8 August 2026 Forwarded from @DissidentThoughtssPhoto
VIX Gamma Squeeze
VIX (implied volatility on 30-day S&P500 index options) is at March 2020 levels this morning. There are a lot of shops who were shorting vol that have now blown up, so it's a good time to recap some of the mechanics and feedback loops likely driving this:
First recall that options buying drives implied volatility up and thus options prices up, not the other way around. Similarly, options selling d…
1 Aug 2024, 12:39 UTC571 viewsread 8 August 2026 Forwarded from @DissidentThoughtssPhoto
Beta-Adjusted
Net exposure by itself is insufficient to analyze a portfolio’s risk because it neglects the different sensitivity of each position to market changes. A portfolio may consist of positions with a strong sensitivity to market changes (i.e., high-beta securities) whose weight in the portfolio is incomparable to the weight of more defensive securities (i.e., low-beta securities). Hence, introducing a more …
Showing the 10 most recent of 10 posts we hold for @DTPrimers. View and reaction counts are the latest single reading for each post, not a live figure, and a recent post is still accumulating both. A view count marked ≈ was rounded by Telegram before we ever saw it — t.me prints views in full below 1,000 and to three significant figures above, so ≈1,200,000 means somewhere between 1,150,000 and 1,249,999. Unmarked counts are exact. Text is reproduced from the public post preview and truncated for length.
