Hi, Ref: CMP, Ch12, p.9 Why is the yield curve based on swap rates first and foremost and only on gilts if swap market no sufficient liquid/deep? I've seen answers online relating to liquidity and to the cost of issuing of debt by debt providers but nothing that seems "official".
Hi I was wondering what the effect of say volatile equity markets would have on the Eiopa yield curve? Thinking out loud I have that: The yield curve is based on swap rates, which is where floating rates are swamped for fixed interest rates. In times of volatility I presume these fixed interest rates become more valuable but I'm not sure how that effects the swap rates and hence the Eiopa curve.
I think the interaction between the equity markets and swap rates is complex. They are fundamentally different things (swaps being based on money markets rather than equities), so a lot could be going on to distort any link. However, I'd agree with Benjamin that often equity volatility leads to a move to safer assets (bonds and cash) and hence a rise in price and a fall in bond yields (and hence the swap curve too). Best wishes Mark
