Matt Levine’s Money Stuff: Strategy Does a Stretch

Algorithmic stablestretch

A fixed-rate bond has interest-rate risk. If you buy a five-year $100 bond that pays interest of 8%, and then interest rates go up by one percentage point, your bond is only worth $96. As rates go up, the yield of your bond has to go up, and to make the yield go up the price has to drop.

A floating-rate bond has, to a first approximation, no interest-rate risk. If you buy a five-year $100 bond that pays interest of SOFR (the Secured Overnight Financing Rate, a standard interest benchmark) plus 4%, then today it pays 8.28% interest ( ...