Linear Rates Trading
Hello everyone !! I may have an opportunity in Sales and Trading for a desk called Linear Rates Trading in Singapore, I've made some research but I struggle finding info of what is this desk. If you have any idea, please do not hesitate to share Like is it still a fast paced environment Do they use options ... ect
Thank you for your help !
At a bank that desk is focused on making markets on government bonds. The linear aspect comes in bc they focus on the bonds themselves whereas a non linear or vol desk would sell the derivatives such as options
Thank you for the explanations !!
Could be government bonds or swaps or both depending on the set up of the bank. It will not be options, that would be under "non-linear" or "rates vol" or something similar. Possibly could include inflation derivatives but less likely if I had to guess. The term "linear" distinguishes those products that have relatively constant price movements as interest rates move up and down (I say relatively because there is some complexity with bond / swap pricing) but key point being that overall a 10 basis point move in interest rates will affect the pricing of a bond / swap in a similar way no matter whether the starting interest rate was 1% or 5%. Options are different because an option that is very far "out of the money" (i.e. nowhere near being useful) will not move much in price even if there is a large move in interest rates, but once rates get closer to the strike, the same basis point move in interest rates could lead to a large price movement in the option. The reaction of an option price to rates moves is therefore "non-linear" as opposed to "linear" products like bonds and swaps.
Rates trading tends to focus on the big liquid markets in government bonds, vanilla interest rate swaps and cross currency swaps. This includes swaps in USD, EUR, JPY, GBP, AUD, NZD etc. along with the benchmark government bonds in each of those currencies (US Treasuries, German bunds, Japanese government bonds, UK Gilts, Aussie government bonds, NZ government bonds). Emerging markets (i.e. most of Asia outside of Japan) will usually be handled by a separate dedicated desk. You will spend a lot of time looking at central banks, inflation, and geopolitical events as these tend to be the main drivers of rates movements.
Rates desks are extremely busy and fast-paced so if that is what you are looking for, you've joined the right desk! The volatility in the rates market this year has been enormous - good for the desk if risk is managed properly as there is a large amount of client business to be done, but pretty brutal if you get caught on the wrong end of a big move in the market.
Thank you very much ! I understand better now, I was afraid that it was a very specific boring desk rates because of the "linear" nomination but obviously it can include several products. Thanks again !
what the difference between a linear rates desk and an electronic rates desk at a bank?
Hard to be specific without knowing the setup of the bank but here goes:
Electronic rates - electronic pricing / trading of bonds, swaps, along with futures and options on these products. If you are working on this desk my assumption is that you would be more managing the technology and algos that are providing the pricing and trading capability. Would be very interesting, just different.
The idea with electronic desks in trading is to automate as much of the flow as possible (within risk tolerance), especially the very small and relatively lower value trades. The more of these that are automated, the more time sales and traders have to work on the larger trades that are not possible to do electronically, and are riskier but therefore more valuable business if you can manage that risk. Some markets are heavily electronic these days (cash equities, developed market spot FX), while others remain more resistant to automation (credit, emerging market FX / rates). However even these desks are starting to see some level of automation, particularly for very small trades where the risk is lower if something goes wrong. Developed markets rates is somewhere in the middle, particularly where there is very deep liquidity and transparent pricing (US Treasuries + related futures / options for example). The more liquidity and transparent, real time pricing there is, the more chance there is for automation.
What is the bonus like for people on electronic desks ?
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