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Hedge Fund Strategies (11) – Liquidity-Based Yield Spreads
Liquidity is the ability to sell a security without significantly affecting its price. This is a positive attribute, and all things being equal, traders will pay more for securities with higher liquidity.
Hedge Fund Strategies (10) – Trading the TED Spread
The difference between the interest rate on three-month Treasury bills versus the three-month London Inter-Bank Offering Rate (LIBOR), is known as the TED spread.
Hedge Fund Strategies (9) – Asset Swaps
Let us resume our tour of hedge fund strategies based on different types of fixed income arbitrage. An asset swap is an over-the-counter agreement between two counterparties to exchange fixed-rate interest payments for floating-rate interest payments.  The fixed portion is a position in a fixed-rate loan, such as government or corporate bonds.  The floating-rate portion [...]
Hedge Fund Strategies (8) – Basis Trading
Basis trading is a form of fixed-income arbitrage that seeks to benefit from a change in the spread between a spot bond price and an adjusted futures price.
Hedge Fund Strategies (7) – Yield-Curve Arbitrage and Butterflies
Our review of hedge fund trading strategies continues with a discussion of yield-curve arbitrage (YCA), a form of fixed income arbitrage. I have previously written about the yield curve, convexity, and duration.
Hedge Fund Strategies (6) – Fixed Income Arbitrage and Spread Trades
Fixed Income Arbitrage (FIA) is the name given to a family of trading strategies that, to various extents, use spread trades on debt instruments to take advantage of pricing inefficiencies independent of overall market direction.  A spread trade is the simultaneous purchase and shorting of related securities (and their derivatives) in the hope of profiting [...]
Yield Curve – Theories
Recall that yield curves (also known as the term structure of interest rates) plot debt maturities (the independent variable) against interest rates (the dependent variable).
Yield Curve – Structure
Yield curves (also known as the term structure of interest rates) plot debt maturities (the independent variable) against interest rates (the dependent variable).
Hedge Fund Strategies (Part 5) – Hedged Equity Short Selling
Shorting a stock means selling shares you do not own in the hopes of benefiting from a decline in the price of the shares. The seller borrows shares, usually from a broker, and delivers them to a buyer in return for cash.
Hedge Fund Strategies (Part 4) –Hedged Equity Market Neutral
Traders take positions in pairs of similar stocks, longing the “undervalued” one and shorting the “overvalued one”, thereby placing a bet on the ultimate outperformance of the long position.