Will FRTB increase required capital for RTL bonds?

The new minimum capital requirements for market risk in the trading book set out by Basel’s Fundamental Review of the Trading Book (FRTB) are approaching fast. In this blog, we discuss FRTB’s impact for positions in non-callable mortgage-backed bullet bonds (so-called RTL bonds ) of which Danish banks hold about 400bn DKK in notional. We estimate capital requirements to increase somewhat less than the 30-40% target increase set by the Basel committee.…

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Everything you need to know about government guaranteed mortgage bonds

During the summer of 2018, the Danish government has refinanced approximately DKK 8bn of callable loans by taking new loans funded in bonds from the recently established government guaranteed capital centers according to the Danish Transport, Construction and Housing Authorithy. How will these new bonds affect the Danish bond market, and how should they be priced compared to regular adjustable-rate mortgage bonds (RTL)?…

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When do key rate measures add up?

Key rate duration and convexity measure your portfolio’s risk towards changes in specific key interest rates. But when do the individual measures add up to your overall measures based on parallel shifts? And how well do the delta and gamma vectors represent the nature of the underlying bonds? We have done the maths and provide you with some (surprising?) answers…

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