StrikeAndYield crib sheet · information and education only
Rates Derivatives
The largest derivatives market on earth: instruments that transfer interest-rate risk between counterparties.
The shelf — 10 instruments
Medium 1
| Interest Rate Swap | Swap fixed interest for floating: the workhorse of global finance, and the largest derivatives market there is. |
Hard 9
| Basis Swap | Floating against floating: the swap that trades the small print between two interest rates everyone assumed were the same. |
| Bond Future | The exchange-traded proxy for government bonds — and a delivery puzzle that keeps traders honest. |
| Cap & Floor | A ceiling or floor on floating interest — insurance against rates going where you can't afford them to. |
| Constant Maturity Swap | Pays a long-term rate every quarter — which sounds simple and is where the convexity adjustment was invented. |
| Forward Rate Agreement | Lock today the interest rate for a loan that starts in the future — one period, one payment, pure simplicity. |
| Inflation Swap | Fix the inflation rate itself: one side pays realised CPI, the other a rate agreed today. |
| Overnight Index Swap | A swap against the overnight rate itself — the cleanest read on where central banks are headed. |
| STIR Future | Exchange-traded bets on short-term rates — the deepest, fastest market for central-bank expectations. |
| Swaption | An option to enter a swap — the instrument through which the market prices interest-rate uncertainty itself. |
What moves prices here
- The shape of the curve, not its level — Steepeners and flatteners trade the difference
- Central bank guidance — The path matters more than the next decision
- Hedging demand — Mortgage and insurance hedging is one-directional and large
- Swap spreads — The gap between the swap and the government curve moves on its own
- Collateral and margin — A cleared position is a daily cash obligation
- Volatility of rates themselves — It prices every option on the curve
The calendar
| Six to eight times a year | Policy meetings |
| Quarterly | IMM dates and futures roll |
| Daily | The reference-rate fixing |
| Monthly | Inflation and labour prints |
| Month and quarter end | Balance-sheet dates |
Which risk decides, across the shelf
| Failure mode |
Decides | Share |
| Market | 10 of 10 | 100% |
| Credit | 0 of 10 | 0% |
| Liquidity | 0 of 10 | 0% |
| Funding | 6 of 10 | 60% |
| Operational | 0 of 10 | 0% |
Counted from the same table each product page prints. Not a
rating and not a ranking: there is deliberately no total.
Information and education only. Every page, figure and
calculator on this site exists to explain how financial instruments work. Nothing here is
investment, tax or legal advice, a recommendation, or a valuation you can rely on.
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