this is why duration matching is key for financial institutions
Illya Gerasymchuk
this is why duration matching is key for financial institutions
this is also the reason why it's generally not a good idea for governments to refinance long-term debt with short-term debt
this shortens the duration of both - government liabilities and market's assets
duration matching protects:
➖ liquidity via cashflow modulation, by helping liability cashflows match asset cashflows
➖ solvency via asset and liability value modulation, by reducing asset value loss when yields fall and reducing liability value loss when yields raise