What One Rate Does to EverythingMedium

Every valuation on this site divides by the same thing. That is why a change in one number reprices eleven markets at once, and why the assets that look least connected to interest rates are often the ones it moves most.

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The denominator everything shares

• Any asset that produces money later is worth what those payments are worth now, and converting later into now requires a rate. Change the rate and every one of those values changes, without a single thing about the asset having changed.
• That is not only a bond idea. A company's shares, a building, a fund's holdings, a pension promise and a private stake are all claims on money arriving later, and all of them are divided by the same kind of number. Present value is the mechanism in one page.
• So the eleven markets in the atlas are not eleven independent things. They have one input in common, which is why the periods in which they all move together are not coincidences and are not a failure of diversification — they are the shared denominator being repriced.
• And the rate is not one rate. It is a curve of them by maturity, plus a spread for the borrower, plus a spread for how hard the thing is to sell. The yield curve and credit spreads are the two halves; this page is about what they do to everything else.

Long-dated means sensitive, and that is arithmetic

• The further out a payment is, the more a change in the rate moves its present value — proportionally to how far out it is. That is the whole of duration, and it applies to every payment from every source, not only to bonds.
• Which is why the most rate-sensitive holdings are frequently the ones nobody files under interest rates. A company whose profits are expected far in the future is a long-dated claim; a pension promise decades out is one of the longest-dated claims that exists; an infrastructure asset with a thirty-year concession is another.
• And why a short-dated holding barely moves however violently rates change: there is not enough time between now and the payment for the discounting to do anything.
• The uncomfortable corollary is that "this asset is not correlated with rates" is a statement about a sample rather than about a mechanism, and the mechanism is present whether or not the sample showed it.

Four channels, and they do not arrive together

The first channel is arithmetic and instantaneous; the third is economic and takes years. A commentary that attributes a slow effect to a fast channel, or the reverse, is the most common way this subject is got wrong in public.

What it does to each shelf

• Fixed income — directly and visibly, and the visibility is the point: a bond's price fall is the same event as its yield rise, which the question page takes apart.
• Equities — through the discount rate on distant profits, and separately through what higher borrowing costs do to the profits themselves. Two effects, opposite in timing, frequently confused for one.
• Credit — twice, and in opposite directions: the discount rate rises, and the borrower's ability to pay is what the spread is about. A rate move that arrives through the third channel becomes a credit event rather than a price move.
• Foreign exchange — as a differential rather than a level, which is the whole of what a currency does: a forward rate is the difference between two rates and nothing else.
• Private markets — with a lag, because the mark is produced by a model on a quarterly schedule and the rate moved on a Tuesday. The lag is a property of the reporting, not of the exposure, and price, value and mark is why that distinction is not a technicality.
• Commodities — through storage and financing, which is a cost of carry and therefore a rate, and through the currency almost all of them are quoted in.

Where the same move ended two different institutions

• An asset side repriced and not reported. SVB in 2023: long-dated holdings, carried at amortised cost, so a rate move produced no accounting entry at all — and then a funding event removed the choice to hold. The rate did the arithmetic; the measurement decided when anybody saw it.
• A liability side repriced and hedged correctly. LDI in 2022: the hedge worked, the collateral calls arrived before the benefit did, and the funding channel decided the outcome while the discounting channel was busy being right.
• The pair is worth keeping together, because they are the same input arriving through two different channels at two different speeds, and in each case the institution's problem was the channel it had not built for.

The two habits

• Ask how long-dated a holding's payments are before asking whether it is a "rate asset". The label describes a market; the sensitivity describes the arithmetic, and only one of them is a property of the thing you hold.
• And separate the channel from the effect. A price change through discounting is instant and reverses if the rate does; a change through cash flows is slow and does not. Reading the second as the first is how a temporary repricing gets described as a permanent impairment, and the reverse is how a permanent one gets waited out.