Illya Gerasymchuk
Entrepreneur / Engineer
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