Introduction to the Interest Rate Complex Presented by Pete Mulmat May 22, 2014

Disclaimer

Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All references to options refer to options on futures. Swaps trading is not suitable for all investors, involves the risk of loss and should only be undertaken by investors who are ECPs within the meaning of section 1(a)12 of the Commodity Exchange Act. Swaps are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. Any research views expressed are those of the individual author and do not necessarily represent the views of the CME Group or its affiliates. CME Group is a trademark of CME Group Inc. The Globe Logo, CME, Globex and Chicago Mercantile Exchange are trademarks of Chicago Mercantile Exchange Inc. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago, Inc. NYMEX, New York Mercantile Exchange and ClearPort are registered trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc.All other trademarks are the property of their respective owners. The information within this presentation has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for any errors or omissions. Additionally, all examples in this presentation are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience. All matters pertaining to rules and specifications herein are made subject to and are superseded by official Exchange rules. Current rules should be consulted in all cases concerning contract specifications. Copyright © 2014 CME Group. All rights reserved.

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Agenda • Fed Funds / Eurodollar Futures • US Treasury Futures • Resources • Glossary of Terms

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Hedging and Speculating

We bring those who want to manage risk together with those who want to profit from accepting that risk.

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U.S. Financial Markets “the relation between the interest rate and the time to maturity of the debt…” - Wikipedia

Normal Yield Curve 7.00

• A “normal” yield curve is usually upward sloping with rates rising over time. This reflects investor expectations of economic growth and possible inflationary pressure.

6.00 5.00 4.00 3.00 2.00 1.00 0.00 3-mo

6-mo

1-yr

2-yr Yield

5-yr

10-yr

30-yr

Maturity

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U.S. Financial Markets “the relation between the interest rate and the time to maturity of the debt…” - Wikipedia

Inverted Yield Curve 7.00

• An inverted, or downward sloping yield curve occurs when short-term yields (rates) exceed long term yields. This was the case in the early 1980’s when the Fed raised short-term rates to battle high inflation

6.00 5.00 4.00 3.00 2.00 1.00 3-mo

6-mo

1-yr

2-yr

3-mo

6-mo

1-yr

2-yr

5-yr

10-yr

Maturity 5-yr 10-yr

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30-yr 30-yr

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CME Group Interest Rate Products 5%

Classic T-Bond 15-25 Yrs

Eurodollars 0-10 Years

5-Yr T-Note

3% 3-Yr T-Note

2%

2-Yr T-Note

1%

Ultra Bond 25-30 Yrs

10-Yr T-Note

4%

30-Day Fed Funds

30-Yr Swap

10-Yr Swap

5-Yr Swap

Blanketing the Yield Curve

2-Yr Swap

CME Group interest rate products include Eurodollars, Treasury, Swap & Fed Fund based products 30-Yr

10-Yr

7-Yr

5-Yr

3-Yr

2-Yr

1-Yr

6-Mth

3-Mth

0%

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CME Group STIRs Short Term Interest Rate Products

Fed Fund Futures • Monthly contract based on 30-day average Fed Funds Rate • Contracts extend out 36 consecutive months

Eurodollar Futures • Quarterly and serial contracts based on 3-month LIBOR rate • Quarterly contracts extend out 10 years

Options are available on these contracts

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What is an IMM quote? • Developed by IMM Division of CME in early 1980’s converts a yield to a price • Price moves inversely to yield, rates go up-price goes down • Designed to allow financial instruments that traditionally traded in yield to trade as a price, more like commodities

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Fed Fund Futures 30-Day Fed Fund Futures Contract Specifications

Unit

$5 million notional value

Cash Settlement

Cash settled to average daily Fed Funds overnight (O/N) as reported by Federal Reserve Bank of New York

Quote

In terms of "IMM index" or 100 less yield, e.g., yield of 0.35% quoted as 99.65

Tick Size

Nearby month quoted to ¼ basis point (0.0025) = $10.4175 rounded up to nearest cent; all other contract months quoted to ½ basis point (0.005) = $20.835

Months

First 36 consecutive contract months

Hours of Trade

Floor trading 7:20am CT -2:00pm CT Monday-Friday. CME Globex® trading platform Mondays - Thursdays from 5:30pm CT - 4:00pm CT Sunday - Friday

Final Trading Day

Last business day of delivery month when trading closes at 4:00 pm

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About Fed Fund Futures • Prices quoted as 100 – Yield, e.g., quote of 99.64 implies yield of 0.36% (= 100.00 – 99.64) • One basis point (0.01%) equates to $41.67 • Minimum tick-size: One-half of one basis point (0.005), or $20.835 per contract.

30-Day Fed Fund Futures January 30, 2014

Month

Settlement

Yield

Volume

Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15

99.9275 99.9200 99.9100 99.9100 99.9100 99.9050 99.9050 99.9000 99.8900 99.8800 99.8700 99.8600 99.8450 99.8200 99.8000

353 2,855 3,587 519 372 781 958 447 257 266 478 1,281 1,100 738 426

Dec-16

98.3250

0.0725% 0.0800% 0.0900% 0.0900% 0.0900% 0.0950% 0.0950% 0.1000% 0.1100% 0.1200% 0.1300% 0.1400% 0.1550% 0.1800% 0.2000% … 1.675%

Open Interest 39,438 43,634 30,271 17,804 14,188 14,678 17,038 16,396 10,618 9,967 6,929 12,757 10,896 8,291 8,510

-

-

16,069

298,209

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Fed Monetary Policy Targeted Fed Funds Rate

Rates 6.00% 5.00% 4.00% 3.00% 2.00% 1.00%

9/5/2013

5/15/2013

1/30/2013

9/13/2012

4/25/2012

12/13/2011

8/9/2011

3/15/2011

11/3/2010

6/23/2010

2/18/2010

11/4/2009

6/24/2009

1/28/2009

10/8/2008

6/25/2008

1/30/2008

9/18/2007

5/9/2007

12/12/2006

8/8/2006

3/28/2006

11/1/2005

6/30/2005

2/2/2005

9/21/2004

5/4/2004

12/9/2003

8/12/2003

1/29/2003

0.00%

Target Fed Funds… • U.S. Fed is rather unique amongst world central banks in that it is charged with restraining inflation and promoting economic growth • Target Fed Funds rate is most significant monetary policy tool • Current Fed keeping rates low, ZIRP, until signs of job creation or signs of inflation

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Fed Funds Futures Curve Fed Funds Futures Curve as of January 30, 2014 Implied Yield 1.8000% 1.6000% 1.4000% 1.2000% 1.0000% 0.8000% 0.6000% 0.4000% 0.2000% 0.0000%

• Prediction regarding future course of monetary policy implicit in Fed Fund futures prices • Fed Fund futures listed in 36 consecutive months … facilitates matching of month with FOMC meeting • Options on Fed Fund futures also referenced as source of information

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CME Group FedWatch

Access here: http://www.cmegroup.com/trading/interest-rates/fed-funds.html

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London and the LIBOR • Markets developed in London in 1950’s and 60’s. • Represent USD denominated deposits held outside the U.S. • London Interbank Offered Rate (LIBOR), succeeded “Prime Rate” in the late 70’s and early 80’s as the U.S. short-term interest market benchmark. • Benchmark status for corporate funding … corporations borrow with “floating” rate plus credit spread, IRS. • Rates administered by ICE Benchmark Administration.

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CME Eurodollar Futures Most active short-term interest rate futures worldwide:

By the Launched December 1981, market growth numbers: facilitated by interplay vs. interest rate swap (IRS) markets 2013 Average Daily Volume = 2.36 million contracts 98% of Eurodollar futures volume is electronic

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CME Group Eurodollar Futures Users and Uses

Users Commercial & investment banks •Swap desks, money market & repo desks, Treasury desks, mortgage desks, corporate/credit desks, asset/liability management

Hedge funds and Commodity Trading Advisors (CTAs)

Uses Price & hedge interest rate swap (IRS) exposures Hedge corporate & commercial paper borrowing rates Manage asset/liability mismatches on balance sheet

Proprietary traders Adjust duration of fixed income portfolios Asset managers Trade shape of yield curve Mortgage servicers Outright interest rate speculation Regional Banks

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CME Eurodollar Futures Eurodollar Futures Contract Specifications

Unit

$1 million face value, 3-month Eurodollar Time Deposits

Cash Settlement

Cash settled to ICE LIBOR 3-month Eurodollar Interbank Time Deposit Rate

Quote

In terms of "IMM index" or 100 less yield, e.g., yield of 0.85% quoted as 99.15

Tick Size

One-half basis point (0.005) = $12.50; except in nearby month, tick is one-quarter basis point (0.0025) =$6.25

Months

March quarterly cycle of March, June, September and December, extending out 10 years (total of 40 contracts); plus 1st 4 “serial” months not in March quarterly cycle

Hours of Trade

Floor trading Monday - Friday 7:20am CT - 2:00 pm CT CME Globex® Sunday - Friday 5:00pm CT - 4:00pm CT

Final Trading Day

2nd London bank business day prior to 3rd Wednesday of contract month. Trading in expiring contract closes at 11:00am London time on last trading day

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Eurodollar Fundamentals IMM Index Quote

Price Quote (99.1550)

Yield (0.8450)

100.00

Basis Point Value

$1,000,000

Days/360 (90/360)

0.01%

BPV $25.00

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Eurodollar Fundamentals Outright vs. Spreads

Outright Contracts Spreads

• Years 1-10 • 40 quarterly contracts plus 4 serial contracts • Simultaneous purchase and sale of contracts in different months • Calendar spreads, butterflies, condors, etc. • Spread traders provide a great deal of liquidity in the Eurodollar contracts

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COPPER

4.0

COPPER

5.0

COPPER

COPPER

SILVER

SILVER

SILVER

SILVER

PINK

PINK

PINK

PINK

ORANGE

ORANGE

ORANGE

ORANGE

PURPLE

PURPLE

PURPLE

PURPLE

GOLD

GOLD

GOLD

GOLD

BLUE

BLUE

BLUE

BLUE

GREEN

GREEN

GREEN

GREEN

RED

RED

RED

RED

WHITE

WHITE

WHITE

WHITE

Shifting of Eurodollar Curve % Yield 6.0

January 2014

May 2013

April 2013

3.0

2.0

1.0

0.0

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Hedging STIR Exposure with Eurodollars

Sell Eurodollar Futures

Hedge risk of rising rates

Buy Eurodollar Futures

Hedge risk of declining rates

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Options on Eurodollar Futures Different risks require different solutions

• These contracts make it possible to use a wide range of trading strategies to suit a number of goals.

ADV

Year-End OI

Eurodollar Futures

2,052,580

10,154,610

Eurodollar Options

110,402

7,145,550

Mid-Curves

484,263

10,184,340

• Long-dated Quarterly out 4-years • Short-dated Quarterly & Serials out 5-years

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Options on Eurodollar Futures • Eurodollar Options expanded from 12 to 16 quarterlies on Nov. 18, 2013 • Weekly Options added on 2 and 3-Year Mid-Curves on Nov. 18, 2013 • Expirations ranging from weekly to December 2017, close to 4 years out

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QuikStrike Essentials Free Web-based Options Analytics Tool

• Visibility into Current and Historical Volatility by Strike • Concise Volume and Open Interest Information • Spread Analysis and Risk Graphs • Options Pricing Analysis

Access here: www.cmegroup.com/quikstrike

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U.S. Treasury Futures based Products

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U.S. Treasury Futures Volume (by contract) 2004-2013

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CBOT Treasury Futures Contract Details

Face Amount Deliverable Maturity

2-Yr T-Note Futures

5-Yr T-Note Futures

10-Yr Note Futures

T-Bond Futures

Ultra T-Bond Futures

$200,000

$100,000

$100,000

$100,000

$100,00

1 ¾ - 2 Years

4 1/16 – 5 ¼ Years

6 ½ - 10 Years

15 – 25 Years

25 – 30 Years

Contract Months

March Quarterly Cycle: March, June, September and December

Trading Hours

Open Outcry: Mon - Fri 7:20am – 2:00pm CT | Globex: Sun – Fri 5:00pm – 4:00pm CT

Last Trading and Delivery Day

Last business day of contract month; delivery may occur on any day of contract month up to and including last business day of month

Day prior to last seven (7) business days of contract month; delivery may occur on any day of contract month up to and including last business day of month

Minimum Tick

¼ of 1/32 of 1 point

¼ of 1/32 of 1 point

½ of 1/32 of 1 point

Minimum Tick Value

$15.625

$7.1826

$15.625

1/32

of 1 point

$31.25

1/32

of 1 point

$31.25

For complete information, visit http://www.cmegroup.com/trading/interest-rates/

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Price Quotations and Tick Values

Price Quotations

Tick Values

• 2-Year and 3-Year Note prices quoted in points per $2000 • All other US Treasury Futures quoted in points per $1000

• Minimum tick size for 30-Year Bond and Ultra Bond contracts are 1/32nd of one point ($31.25) • 10-Year Note is half of 1/32nd of one point ($15.625) • 5-Year, 3-Year, and 2-Year Note contracts are one quarter of 1/32nd of one point ($7.8125)

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Trading Example Example 1: A trader believes that the US economy is strengthening and intermediate Treasury yields will increase

• Trader sells 10 contracts of March 2014 5-year T-Note futures @ 120 25/32nd Open:

• Trader buys back the 10 March 2014 5-year T-Note futures @120 03/32nd Close

Contract Specs

Results

• The tick size for 5-year T-Note futures is ¼ of 1/32nd of 1 point • The dollar value for minimum tick for the 5-year T-Note futures is $7.8125

• Number of ticks made on the trade = (25/32 – 3/32) * 4 = 88 Ticks • Profit on this example trade = 10 Contracts X 88 Ticks X $7.8125 = $6,875

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Trading Example Example 2: The monthly US non-farm payroll number on the first Friday of a month comes out significantly weaker than expected. This indicates a surprisingly weakening economy.

• Trader buys 10 contracts of March 2014 10-year T-Note futures @ 125 15.5/32nd Open:

• Trader sells back the 10 March 2014 10-Yr T-Note futures @125 23/32nd Close

Contract Specs

Results

• The tick size for 10-year T-Note futures is 1/2 of 1/32nd of 1 point • The dollar value for minimum tick for the 10-year T-Note futures is $15.625

• Number of ticks made on the trade = (23/32 – 15.5/32) * 2 = 15 Ticks • Profit on this example trade = 10 Contracts X 15 Ticks X $15.625 = $2,344 (rounded to nearest dollar)

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Treasuries and Economy Historical Patterns • Economy strengthens: - Increase in interest rates - Increased demand for loans - Asset allocation out of bonds into stocks - Increased likelihood of interest rate increases by the Federal Reserve Board

• When interest rate rise US Treasury prices fall • Economy weakens - Decreased demand for loans - Asset allocation out of stocks and into bonds - Increased likelihood of interest rate decreases by the Federal Reserve Board

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Structuring A Yield Curve Trade • Develop a yield curve outlook • Review spread logic • Filter out extraneous factors • Consider possible outcomes

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5-Year vs. 10-Year Yield Curve Comparison

5-Year Daily

10-Year Daily

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Developing a Yield Curve Outlook • How do you expect the Treasury Yield to react to interest rate developments during the term of the trade? - Which yields are falling? - Which yields will steepen? • Yields flatten as they rise

• Be aware that events can interrupt normal yield curve dynamics

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The Yield Curve

Access Chart Here: http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/Historic-Yield-Data-Visualization.aspx

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Review Spread Logic

Expectation: Yield Curve to Steepen Trade Idea: Long 5-Year T-Note Futures | Short 10-Year T-Note Futures Initial Futures Price

Change in Cash Yield (bps)

Final Futures Price

Difference in Futures Price

5-Year T-Note Futures

119-080

+20

118-100

0-300

10-Year T-Note Futures

120-010

+10

122-090

0-240

Product

Note: You buy or sell a yield curve spread in terms of what you do on the short maturity leg of the trade.

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Review Spread Logic

Expectation: Yield Curve to Flatten Trade Idea: Short 5-Year T-Note Futures | Long 10-Year T-Note Futures Initial Futures Price

Change in Cash Yield (bps)

Final Futures Price

Difference in Futures Price

5-Year T-Note Futures

119-080

+20

118-100

0-300

10-Year T-Note Futures

120-010

+10

122-090

0-240

Product

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Filtering Out Extraneous Effects

True yield curve spread filters out directional effects Product

Initial Futures Price

Change in Cash Yield (bps)

Final Futures Price

Difference in Futures Price

Futures Dollar Change

5-Year T-Note Futures

119-080

+20

118-100

0-300

$234.375

10-Year T-Note Futures

120-010

+10

122-090

0-240

$375.00

Goal: Filter out directional effect and design a trade that will respond only to a change in the shape of the yield curve

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Understanding the mechanics Help from CME

• 1 Basis Point (bp) = .01% of Yield • DV01 = Dollar Value of 1 Basis Point (bp) in Yield • DV01 indicates approximately what one futures contract will gain or lose in dollars for every 1 basis point change in yield • Execution: Match the dollar value of a 1 bp change in the yield of the shorter-term maturity futures position and that of the longer-term maturity futures position

Access here: http://www.cmegroup.com/trading/interest-rates/files/Calculating_the_Dollar_Value_of_a_Basis_Point_Final_Dec_4.pdf

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Understanding the mechanics Help from CME

Treasury Futures Empirical Duration Tool

Access here: http://www.cmegroup.com/trading/interest-rates/duration.html As of 2/11/2014

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Example of Execution Known*: 5-Year T-Note Futures DV01 = 46.61 10-Year T-Note Futures DV01= 65.09 Calculation: 5-Year T-Note Futures DV01/10-Year TNote Futures= Spread Ratio Execution: 46.61 / 65.09 = .7160 Results: If you expect the yield curve to steepen, this ratio indicates that you should go long 10 contracts of 5-Year T-Note Futures and short roughly 7 contracts of 10-Year T-Note Futures

*As of 2/10/2014

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Summary • A yield curve spread trade is a speculative trade, but it shifts the burden of speculation from taking a position on interest rate or price direction to taking a position on what you expect the yield curve to do.

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Options on US Treasury Futures Different risks require different solutions

CBOT Treasury Futures Contract

ADV

Year End Open Interest

2-Year Note

229,428

760,802

5-Year Note

695,746

1,873,458

10-Year Note

1,293,365

2,221,389

30-Year Bond

338,743

648,059

Ultra Bond

83,928

452,154

Total

2,641,210

5,945,862

CBOT Treasury Options on Futures Contract

ADV

Year End Open Interest

2-Year Note

7,653

22,981

5-Year Note

96,573

811,877

10-Year Note

358,736

1,653,367

30-Year Bond

75,896

354,267

Ultra Bond

350

5,928

Total

539,208

2,848,420

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Options on US Treasury Futures Options on US Treasury Futures deliver a futures contract – NOT a US Treasury bond or note

Therefore they expire prior to First Position Day for the underlying futures contract

Example: March 2014 UST Options expire Friday, February 21st at 4:00pm CT

Last Trading Day: The last Friday which precedes by at least two business days the last business day of the month preceding the option month. Trading in expiring options ceases at the close of the regular CME Globex trading session for the corresponding futures contract.

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Options on US Treasury Futures

•

Treasury Options 2013 ADV of 539,000 contracts/day – up 56% YOY

•

2013 electronic percentage – 54% in 2013

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Interest Rate Options Resources Information and Tools

Resource Papers

CME Group Interest Rate Products www.cmegroup.com/interestrates

Eurodollar Mid-Curves http://www.cmegroup.com/education/featuredreports/conflicting-global-signals-complicate-fedguessing-game.html

Market Maker Contact List www.cmegroup.com/rfq Block Trade Requirements and Vendor Codes: www.cmegroup.com/irvendorcodes Interest Rate Options Volume www.cmegroup.com/iroptionsvolume QuikStrike Options Analytics tool www.cmegroup.com/quikstrike Request for Cross (RFC) Information www.cmegroup.com/rfc Block Trade Rules and Procedures www.cmegroup.com/block Interest Rate Options Open Interest Profile Tool www.cmegroup.com/iroptionsoi Weekly Treasury Options www.cmegroup.com/wto

Weekly Treasury Options http://www.cmegroup.com/education/featuredreports/itcm-treasury-2014-01-07.html Treasury Options and the U.S. Economy http://www.cmegroup.com/education/featuredreports/blu-putnam-us-unemployment-poised-to-dipbelow-7-percent.html Options Fundamentals http://www.cmegroup.com/education/featuredreports/option-fundamentals-for-fixed-income-assetmanagers.html http://www.cmegroup.com/education/featuredreports/option-strategies-for-fixed-income-assetmanagers.html

Eurodollar Mid-Curve Options www.cmegroup.com/midcurves

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Thank you Pete Mulmat [email protected]

Glossary Terms Accrued interest = the interest that accumulates between fixed coupon payment dates. ADV = Average Daily Volume, commonly used by CME to describe the trading activity in a contract. Arbitrage = simultaneous trade between two markets using the same security. E.g. buying the same US TBond from one party while simultaneously selling it to another party at a slightly better price. This term has morphed over time and now is used when describing trading between markets with similar securities. Basis = usually refers to the spread between a futures contract and its underlying physical or spot market. BPV, VBP, and DV01 = all refer to the same thing, the change in dollar value of a security caused by a 0.01% change in yield. Carry = refers to the value or cost of financing a security over time. Can be expressed in positive or negative terms. CF = or conversion factor, refers to the CBOT Conversion Factor pricing system for US Treasury futures contracts. Coupon Yield = interest rate of a security fixed at issuance, usually expressed in annual terms. For example, a 2% bond pays 2% interest annually. Treasuries are quoted in coupon yield expressed in annual terms but pay interest twice per year.

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49

Glossary Terms CTA = Commodity Trading Advisor, designation applied to registered advisors of commodity funds. CTD = cheapest-to-deliver, or the US Treasury security most efficient to deliver into a Treasury futures contract. Duration = change in value of a security to a 1% change in rate, expressed in years. For example, a bond with a 5-year duration will loose 5% of its value if rates rise by 1%. Used to measure the risk of individual bonds or bond portfolios. Eurodollar = US Dollar denominated deposits held outside the US and not under the jurisdiction of the Fed. Face Value = a.k.a. Par Value, or par, the dollar amount to be repaid to holder of the security at maturity, e.g. A $1,000 face value, 2% 10-Year Note will pay 1% twice a year for ten years and at the last payment return the to the holder $1,000. Fed = short for Federal Reserve, the US Central Bank. Fed Funds = rate a which member banks may trade balances held at the US Fed. IMM = International Monetary Market, a division of the Chicago Mercantile Exchange.

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50

Glossary Terms IRS = as it relates to the capital markets refers to Interest Rate Swaps. LIBOR = London Inter-Bank Offer Rate, cash benchmark rate determined by survey of London based banks. Used extensively by the IRS market to price floating rate side of swaps. OI = Open Interest, used by exchanges to describe open positions at the end of a daily trading session. Repo = agreement to sell and repurchase a security in exchange for terms. The Repo market for US Treasuries provides overnight funding for banks and dealers in government securities and allows short sellers of securities to borrow securities in exchange for funds. STIR = Short-Term Interest Rates Swaps = a derivative in which counterparties exchange cash flows of one party’s financial instrument for those of the other party’s financial instrument. TED = Treasury versus Eurodollar spread. US Treasuries = or “Treasuries”, debt issued by the US Federal Government offered in multiple maturity dates auctioned on a regular auction schedule. Treasuries are made up of T-Bills, T-Notes, T-Bonds, and TIPS. UST-Bills = Treasuries with original maturity of less than 1-year.

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51

Glossary Terms UST-Notes = Treasuries with original maturities of 2-years but no more than 10-years. UST-Bonds = Treasuries with original maturities of more than 20-years. Yield = refers to return on investment but can mean different things i.e. coupon yield, yield to maturity, current yield, and tax except yield all describe different aspects of a bond’s yield. Yield-to-Maturity = or YTM, an estimate of what the investor will receive if the bond is held to maturity. ZIRP = Zero Interest Rate Policy, policy of the Fed to hold Fed Funds rate at near zero percent.

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