Ses 5: Fixed-Income Securities II

[@studVyazemskiyYA]

The fact that this course was being recorded during the GFC is amazing

[@zamokuhlem5735]

South African studying at University of Kwa-Zulu Natal and I am marveled at the way in which MIT Lecturers deliver the content they teach. They aren't just developed academically but they can also relay the information to those listening in a simplistic manner. Thank you MIT Opencourseware

[@parkerbeck9288]

This lecture is amazing and surprisingly simple. After hundreds of hours listening to finance yotubers, I finally learn how bond prices are determined. So much stuff I've heard over the years suddenly makes a lot more sense now.

[@scenneasiers]

Yeah when you got the brains it is actually more time efficient to just listen to a university lecture on the topic than to one hundred "expert" influencers

[@OttoFazzl]

This lecture is doing extremely good job of clarifying interest rate relationships. Andrew Lo is amazing!

[@goruloveguy]

I have taken Prof Lo's class at Harvard on behavioral economics and he is amazing

[@ryanpeet5337]

Bgary llwb

[@angelbaby.7897]

Do you have any info, like textbooks, pdfs, studies or anything on the topic you can share? Id love to learn more (:

[@agustinsans2902]

@@angelbaby.7897 adaptive markets hypothesis, by andrew lo

[@jarrodsmith8045]

"You can never have a negative nominal interest rate." What a brave new world we live in!

[@randiaz95]

Well wouldnt any form of transfer be a negative interest rate? or npv of a liability

[@noueruz-zaman7894]

I got Japan bank's interest rate was negative same with Swiss national bank, it also has negative interest rate

[@noueruz-zaman7894]

I believe Japan and Switzerland national bank's interest rate is negative ?

[@unistuff885]

You are confusing real and nominal interest rates. When you're stuck at around 0% interest rates(nominal), the real interest rates are negative. Remember the equation: r_real = r_nominal - π . Real interest rates will be negative as long as inflation is higher than interest rate which isn't hard to do when you are at 0% interest rates. Any sane person will NOT accept negative nominal interest rates bc just holding on to cash will give them a bigger return (0%) than when they would accept a negative payoff. Hope this helps.

[@clockfixer5049]

And furthermore, it acts a lure for ever more people. Basically lowering the 'price', thus increasing the quantity demanded, since the demand here is elastic, banks will generate more revenue on the whole. Inflation is well predicted in stable economies like those of Switzerland, Japan and the likes.

[@elonmustard450]

This is how the best finance school teaches finance. Certainly better than my professor who was just quoting from books

[@jeremiahosibe]

Andrew makes financial concepts come alive with very interesting adjectives.

[@jeremiahosibe]

"Flight to liquidity..." 😅

[@brentsrx7]

It would be an honor to take this course. Lo is amazing. You can tell that he is one of the good guys. Very rare gentleman indeed.

[@av5957]

Lecture starts at 10:13

[@buraknuhemiroglu6033]

they even add subtitles, wow mit, what a school !

[@johnessien2167]

Professor Andrew Lo is definitely one of the best teachers I have had the privilege of learning from. The man makes finance exciting and intuitive at the same time.

[@jaypanchal5042]

The one girl in every lecture: "I'm from Argentina and when we have crisis...."

[@jacoboribilik3253]

I feel you. I am from Argentina and we have this crisis.... Just kidding. We can be self-centered at times and we all collectively apologise for it

[@napoleonbonaparteii7369]

29:10

[@Diego-tm3dj]

She was in MIT, for sure she is a millionaire, her family is very rich. Just argentine elite can send their kids to study in US. I am spanish, I know a little bit about Argentina.

[@josedaniellopez254]

I come from 2024… the crisis still th*********😅

[@chetant123]

If this was a lecture on geopolitics then that one girl in every class would be Israeli

[@klb-og7cp]

I cant wait to watch and learn all about finance on this series ps: I would like to think some day I'll meet Lo and I'll be able to thank him for this masterpiece of a series myself.

[@kieronmckay4276]

This is my second chance to go to MIT through lehman brothers weekend...thank you producers for making this.

[@michaelw7769]

hope MIT can post more video lectures

[@mazharabbas34]

The addition of subtitles is awesome. Thanks MIT

[@VeteranFitnessChannel101]

Looking at this in 2015 is incredibly interesting. Oh how wrong the yield curve expectation was. Fascinating and it would be incredible to see Prof Lo reviewing these lectures in hindsight.

[@wickedwitch877]

+Veteran Fitness Channel And also, a lot of european countries have negative interest rates

[@olekkuvppl]

+Veteran Fitness Channel In general it is fascinating that even the best people had no way to see how bad things ended

[@dirmanbw336]

It starts here 10:10

[@riy99]

Thank you for this video, and i hope you can add new videos about finance.

[@patrickblair2818]

When rates go up ... That will require some higher up in the business food chain to work a bit harder.... They borrowed at zero but if the interest rates go up it's gonna be tougher on them to repay because effectively the cost of a certain type of capital/liability increases. It almost creates a tax ..... I'm not sure I'm correct though it's been a long time since I studied finance

[@Varttino]

1:02:21Andrew Lo it's the only guy on earth that can use that toolbar and not look like a sociopath

[@emmanuelosakuni8647]

Okay, I'm confused Which comes first : spot rates or bond prices? Whichever one it is, how does it get determined? How do spot rates relate to lending rate banks offer? Are coupon rates interest rates? How do they get determined? Is it the coupon rates or spot rates that increase with risk?

[@mishrashubham007]

starts at 10:00

[@tommihemmi9265]

Wouldn’t the net value at year 2 be 904k not 10.904.000 as you have to pay 10MM in dividends at year 2?

[@malharjadhav8404]

In question mentioned on 54:46 . The bank already has a forward contract of 20MM at 8.51%. Then what is the used of buying and selling all those discount bonds?

[@arjunarun9174]

I think we buy and sell those discount bonds not in real life, but in theory to figure out the interest rate (future rate between years 3 and 4) for the loan.

[@lennon_richardson]

~52:00 what does he mean by “repatriation”?

[@Krishna-h3o2k]

returning money

[@lincha3216]

"we don't know what they are , but we know they really exist. "

[@parthsrikanth2627]

@9:27 Why so serious

[@patrickblair2818]

I wish I knew what the variables stood for.... I have to watch the video again and look up some of the vocabulary... unfortunately I'm sort of rusty with my financial acumen 😑

[@bart9522]

I don't understand why he says that the FED determines the interest rate, and also claims that the market decides the interest rates for various time periods.

[@Cigarrinhu]

these are two different interest rates, it seems someone in the class made that same confusion at a certain point. the fed's interest rate is the one to which bank lend money to each other, it's a different market and he does so in order to control the flow of money through the economy. the latter is a theoretical interest rate "r" for any asset, which is given by the market as a reflex of their preferences (in the case of the interbank market there's the fed to set the interest rate because of it's impact in other variables of the economy, like output, emplyment, inflation, etc).

[@chuanqisun]

*Lo* and behold, the Fed cut the rates.

[@Anahide_design]

Looking at the US treasury bonds yield curve in November 2021... Even worse than 2008.

[@joydivine4587]

Damodaran + Lo + Fabozzi=🔥

[@jrs7541]

Please explain the short selling part. I am confused. So you are going to sell a 3 year bond that pays $50 each year until it matures in 3 years. So are you selling the $50 each year and when he said strips it?

[@HarshShukla-o5v]

THANK YOU

[@iopjklbnm123321]

Serious, all these formulas can be vastly simplified by define discount factor Ft = 1 /(1+Rt)

[@titler3140]

didn't he already do that tho. I think in the first few classes he explained the formulas, although he may have not put it on any of his slides, I seem to recall him explaining that quite clearly when he was talking about converting perpetuity to an annuity.

[@Regalert]

Great Master.

[@asdfhsfdtehaed]

In the example with the 3 types of STRIPS vs a 3 year coupon bond, wouldn't transaction costs for short selling the bond be enough to allow for a small price differential between the two without room for arbitrage?

[@russellrobinson8139]

Minute 8:35, if you are a pension fund, you are required to hold investment grade assets........... ha!

[@himjanand2034]

if u still studying this course, would u like to work with me?

[@tasnimsarker4653]

Hope to see more course video from MIT

[@asdfasdfwae]

Quavo and Kanye together.

[@joeyjoejoe172]

lmao

[@MrBTie]

his own, for sure

[@nicolasrodrigo9]

And still there's people looking at MACD and RSI indicators to see where the markets will go 🤦🏻‍♂️

[@panzach]

which one?

[@ivanchew972]

whats the difference between R and little r?

[@adamkimbrough5460]

R is 1-year rates and r is multi-year rates.

[@stylishmints]

The sample mid term question and answer sheets don't match! Damn

[@ericfay5531]

1:00:20 Lies! Complex numbers represent reality. They are necessary to represent quantum states.

[@nataliiakhotiaintseva3977]

54:41 "who aren't good end up losing out on good opportunities", and then a student looks at us XD

[@DY-uy3rx]

In the good old days, you can never have a negative nominal interest rate.

[@UmTheMuse]

Does it make sense to make a "yield curve" for options trading? It occurs to me that you can create big R by comparing the costs or premiums of buying/selling an option to get an idea of what the market expects to happen to the stock price. Compare this yield to the yield curve for treasuries, and you should get an idea of the risk premium as well. Does that make sense?

[@nicolasrodrigo9]

Yes you can calculate the interest for options and compare them to the interest rates. That's how you can do arbitrage. Remember how to do synthetic futures (buy a call and sell a put, same expiration and strike = long synthetic future). Now, if you own 100 stocks and you sell a synthetic future for let's say the next 3 months expiration, you will be obligated to give back those shares at expiration. There's time value in between... in other words, an interest rate. Sometimes, depending on the options pricing, that interest rate obtained by options is superior to interest rates you could get from fixed income or other loans. That's the general idea, I don't remember specifically all the theory right now. You can also do the opposite, selling stock and putting the money to work if the interest is higher, but I don't remember well, you'll want to verify this before doing it 😅. This type of imbalances are very common in markets without enough arbitragists and you can profit from them (there's not many people who realize when these opportunities arise, that's why arbitragists are like übermensch). I think in the US markets algos are doing these arbitrages. Of course with options you have in the middle the risk of being excercised.

[@patrickblair2818]

3 basis points.... The economy is dying that's what it means. They need lending to happen to grow the economy,( that's an opinion).

[@EliotMcLellan]

AT ABOUT THIS TIME SATOSHI NAKAMOTO, ALSO FROM MIT, HAD JUST COMPLETED THE GENESIS BLOCK, WHICH HE BEGAN ON THE SAME DAY AS THE GOVT BAILOUT - WILL THE REAL SATOSHI NAKAMOTO PLEASE STAND UP PLEASE STAND UP PLEASE STAND UP, CUZ I'M SATOSHI THE REAL NAKAMOTO

[@TOBI-wf2ds]

35:29

[@phildurre9492]

Bery usefull lecture in 2020-2021, i guess i will just go to the next lecture😂😅

[@cryptolicious3738]

soooo Funny to watch now AFTER trillions have been printed in a year....

[@joeyjoejoe172]

thanks to covid..i am now learning something

[@arrowb3408]

Hey, to whomever come to sit in this lecture: HAHAHA...Do you see the dude in white head band on the right screen sitting behind Andrew?At the beginning of the video He raised his hand twice and still couldn't be called by Andrew due to not able to see this fellow. Hahaha... LMAO......STF....

[@trustonlyline4206]

Why does KZbin push this video? Why why why? Everyday it plays has for me? Anyone?

[@mitocw]

We aren't sure. You probably watched on something investment/economy related in the past ...but if you don't want this video to show up again, just click on the menu next to the video and choose "Not interested".

[@lamehazelnut7860]

youtube U summer 2020

[@kaptainKrill]

And yet today 30-year bonds are at only 3.5%. Even in the throes of chaos, rates were higher then than they are now, in our "recovered" state.

[@neelmoradiya1389]

🙏🙏👍👍🇮🇳🇮🇳

[@ArtMaknev]

$85 billion lol

[@vinigretzky97]

Stop that spam!

[@anudeep_tondothi]

Hey MIT OpenCourseWare I owe u money...... My debt will be paid by my 💵 future billions 💵.... 🤭

[@Elcheskovat0210]

I'm pissed off... Texas is fucking Up ..