How do FXBs work mechanically? eg: standard bonds (Treasury, Credit,

Question

How do FXBs work mechanically? eg: standard bonds (Treasury, Credit,

EM) are all issued at par face value (100 cents) / // it assumes a fixed coupon yield, but not current or Yield to maturity (which can change with term rate structures)

If Frax is investing in overnight repo or short duration treasury bills that's not locking in a 3 or 4 year rate

consider it another way: if the Fed cut rates to 1% tomorrow, but you have a FXB 4-year bond that you paid .90 cents for (to guarantee/lock in that IORB rate ~5.40%, that should trade higher in price (perhaps above par) to reflect that interest rate differential, like in normal bonds, right?

#cryptocurrency #english #frax

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09.10.2023

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@samkazemian

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7 месяцев назад

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@samkazemian am I misunderstanding something here?

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7 месяцев назад

Sam Kazemian ¤⛓️¤ · Accepted Answer

Sam Kazemian ¤⛓️¤

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@samkazemian am I misunderstanding something here?

Ya the misunderstanding is that sFRAX uses short dated tbill and overnight repo rates. But FXBs match their duration to the nearest tbill duration to lock in that rate as you mentioned. Otherwise there'd be duration risk.

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7 месяцев назад

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How do FXBs work mechanically? eg: standard bonds (Treasury, Credit,

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