When rates are zero, derivatives make every basis point count

April 28, 2020 Bob Newman

 

 





When Rates are Zero, Derivatives Make Every Basis Point Count
April 28, 2020

 

It’s been one quarter after another of surprises from the Federal Reserve Board.

After shocking many forecasters in 2019 by making three quarter-point cuts to its benchmark interest rate target, the data-dependent Fed was widely thought to be on hold entering 2020. But the quick onset of the coronavirus pandemic hitting the United States in March 2020 quickly rendered banks’ forecasts for stable rates useless. The Fed has acted aggressively to provide liquidity, sending its benchmark back to the zero-bound range, where rates last languished from 2008 to 2015.

During those seven years of zero percent interest rates, banks learned two important lessons...

About the Author

Bob Newman

Bob Newman is Managing Director for Chatham’s Financial Institutions business which specializes in interest rate risk management, hedge accounting and investment advisory for banks. Prior to joining Chatham in 2003, Bob spent 20 years in commercial banking, helping to start the derivatives operation at Maryland National Bank and expand the derivatives effort at SunTrust. He graduated from the College of William and Mary with a BA in Economics and has earned the Chartered Financial Analyst (CFA) designation.

Follow on Linkedin More Content by Bob Newman
Previous Article
What is an interest rate swap?
What is an interest rate swap?

An interest rate swap is a financial contract in which two parties agree to exchange distinct cashflows for...

Next Article
U.S. real estate market update—April 27, 2020
U.S. real estate market update—April 27, 2020

This update summarizes recent actions of the Fed, how those actions have flowed through to indicators of cr...