Analysing and Interpreting the Yield Curve (Wiley Finance)

The first edition of this book was RIDDLED with typos, sloppy sentences, and superficially-treated subjects. That criticism applies to both the hardcover and the Kindle edition (which contained no corrections to the typos found in the hardcover edition). As for the Kindle edition, many of the equations were poorly transferred to the ebook — not just because of their fuzziness but also because of their incorrect juxtaposition with surrounding text. It is therefore very important for me to see a sample of this 2nd edition before buying.And what does amazon send as a sample? Just some of the table of contents and some of the list of illustrations! Already these look like one of their more slipshod ebook conversions. (I buy a lot of Kindle technical books, so i have a solid basis for comparison.) But without any pages of content, it’s impossible to judge the quality of the equations in this second edition.I hope that this one-star review will get some attention from Amazon and they will provide some more material on which to judge the book.

To be able to capitalise from the changing direction of the bond market, you should have a better understanding of current market sentiment and potential future price action. Investors use several indicators to grasp this insight, and the yield curve is the much more reliable indicator for this, because it not only tells where the market is trading now but also implies the level of trading for the future. Not just that, it provides a fairly reasonable estimate of inflation expectations, which is undeniably key insight for monetary policymaking. Importantly, a careful analysis of the present shape of the curve will let bond market participants get a better sense of the future direction of market interest rates. Thus, not only financial market participants but also policymakers view the yield curve as a quite useful tool given its precious information content. The formation of the inverted yield curve -- a situation where yields on the short end of the curve are higher than those on the longer end -- in the U.S. and a subsequent sizable impact it had on global financial markets clearly tells how significant the role yield curve plays in the world of finance and economics is.Developments in some segments of financial markets after the 2007-08 financial crisis have been a source of astonishment. For instance, before the crisis, we would not have thought of negative interest rates. Today, they are a commonplace in some countries in the eurozone. Another interesting yet unusual development is that of the swap rate falling below yields on government securities. While these two events led to a remarkable change in the way we interpret yield curves, the rise of central clearing in OTC derivative markets has had market participants use OIS rates as a reference rate, instead of the earlier practice of using Libor, to value collateralized derivative instruments. So, it is essential for market participants to be familiar with not only this new practice but also all available methodologies to accurately take into account potential impact of collateral agreements giving various optionalities, which quite often adds to the complexity. In brief, practitioners need to be equipped with a tool to glean through these pose crisis developments in order to accurately estimate and build a yield curve, and rightly interpret insights delivered by it. The second edition of ‘Analysing and Interpreting the Yield Curve’ precisely aims at being such a tool.The author does not need much introduction. Having held various senior positions at leading banks and investment banks for years and published many best-selling books as well as acclaimed research papers, he is undeniably a global specialist in this domain. While his first edition’s explanations on the fundamentals of yield curve analysis and interpretation are quite rewarding and stay relevant forever, the second edition comprehensively covers latest developments such as multi-currency curve, OIS discount curve and the negative interest rate scenario, and thus acts as a valuable guidance to build an effective yield curve in the post-financial crisis world.The author rightly allocated a sufficient portion of the book to provide a succinct yet adequate refresher on yield curve basics before taking the readers to techniques used in estimating and fitting the yield curve, as well as many real-world examples related to them. Since mathematical concepts are the foundation of interest rate and yield curve modelling, it would seem inappropriate if such models were not explained with the help of mathematical derivations. Too much mathematics, however, would risk key yield curve concepts these very models trying to explain being overlooked. The author was cognizant of this risk and strikes a right balance between summarizing interest rate models in a practical way within the boundary of user application and explaining mathematical concepts behind them. As a result, even someone who is not that good in mathematics like me can easily understand the best-practice curve interpolation techniques demonstrated in this book.While the entire book offers a plethora of solutions to major issues evolved after the financial crisis, I personally feel that derivative traders may find Chapter 8 quite useful due to the fact that it offers many strategies to overcome complexities involved in constructing an appropriate yield curve in an increasingly collateralized trade environment. The guidance on how to identify relative value in government bonds, detailed in Chapter 12, is something that bond market participants would find more valuable.Finally, I am in complete accord with the author’s argument that the yield curve being an important and vital topic in finance does not need to be an arcane specialism. Bankers, even after rise in the profession, should keep themselves abreast of key topics of the yield curve analysis to ensure that a particular view taken by the ALM desk correctly reflects signals from the yield curve on the expected path of future interest rates.