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And another point to consider that is particularly relevant to the US mkt is the convexity needs of the mtge community (they used to use participate mainly in the 10y area). Obviously, things have been changing a lot in that space, so it's not entirely clear how that dynamic will evolve.

You're sweetness itself, truly...

Well, it's a form of risk aversion, I guess. Point is that a pension manager's mandate requires them to hedge the interest rate exposure of some, if not a majority, of their liabilities. Hence, the ALM bid for long-dated duration, whether in cash bonds or derivatives, such as swaps/swaptions...

Hahaha, nazz, I wasn't trying to be an arrogant prick, honest... It's just that, having been the wrong way on this trade in 2008, I have had time to do a lot of soul-searching. As a result, I feel very strongly about it, as the wound is still so very fresh.

The attractiveness of yields doesn't really have much to do with it. They are constrained by their mandates and have to hedge. Their hedging needs are greater than the supply of duration that the mkt can offer. Thus the curve flattens and 10s30s looks a lot flatter than, say, 5s10s. This...

Ah, OK... Best of luck with that then! It's not something that would fill me with confidence.

Yet another stupid number... There's a whole ton of threads talking about the reasons it's wrong to use notional quantities when talking about derivatives. It's completely meaningless. As to the Harvard example, that's also total bollox. Harvard's swaps were hedging its floating rate...

Because Germany is a G7 nation and a core member of the Eurozone, Germany will probably be able to re-denominate its bonds to NeueDM at very little cost to itself. A re-denomination like this by a G7 country is not considered a sovereign default, according to ISDA definitions for sov CDS...

Cool... It's gonna be difficult to validate without more detail/data.

achilles-san, you are most certainly entitled to your opinion regarding my level of understanding. Thus, no offense taken. My point about the Great Depression had nothing to do with its effect on the US (there are other nations out there, you know :)?). The downturn had an effect on other...

Why do you say that the Great Depression was purely American. In fact, it was worldwide. It had a particularly painful effect on Germany with unemployment reaching arnd 30% by 1932. I am not alone in drawing a link between the depression and the collapse of liberal democracy in Germany...

Can you give us a general idea behind the methodology you use to arrive at these price targets? Specifically, are they implied by mkt prices or forecast outputs from some sort of a model?

No, it's because there's a lot of demand from pension funds and various structured notes out there...

Strictly speaking, you need a price for an ATM straddle that expires tomorrow and for one that expires the day after. You can then try to compute the implied fwd variance. Otherwise, if you can get a quote in a 1d fwd ATM straddle, you can have a version of your X directly. In the world of...

If everyone in the mkt agrees that the volatility of the underlying will be reduced tomorrow, you will, indeed, see it affect implied vol and option prices. Stuff like this happens in the world of rates over significant econ release days. I'd guess it also occurs in equities with the earnings...

As I said in my post, the prevailing nominal interest rate has to be a function of a) productivity/population growth rate (use real GDP as a proxy); and b) rate of inflation (in our stylized case, the growth of money supply). Let's say it's 5%. How do you arrive at over double the savings...

10-20% is silly... In a world that you describe, a prevailing interest rate would be equal to the nominal rate of return on a marginal ivestment in your world's imaginary economy. In itself, this nominal rate of return would be a combination of the real rate of return, which would be a...

1. Since you said to pick whatever I want, here's my choice. I am particularly fond of the MNTKZT pair (for the uninitiated, that's Mongolian Tugrik vs Kazakhstani Tenge exchange rate). 2. Don't care about the timeframe. Do your magic!

Yes, you keep the premium, but in the above scenario you will be selling your delta at the same or lower price than you bought it. So you will, at best, spend your premium on commissions.

See here for some specifics (was written when WTI was a lot more in contango than now): http://ftalphaville.ft.com/blog/2008/12/08/50144/profiting-from-a-contango-not-so-easy/