FT

• Rising petrol prices have a 2-month lag before they have a negative impact on retail sales. Potentially a problem for May - June
• Inflation expectations
  
• 10-year break-even inflation - measured by comparing US treasury yields with those of TIPS - touched a high of 2.51%. 5-year break-even inflation reached 2.2
• 5 year / 5 year measure - inflation expectations for 5 years that start in 5 years time - reduced the short-term influence of oil prices on spot break-evens and are favored by the Fed. this measure is lagging behind the jump in oil prices.
  
• Forward inflation break-evens reached a high of 2.6% and is not moving w/ oil prices as they have int he past, which makes the current spike in oil prices a more temporary shock
• Forward Rate - The forward rate is the price used to determine the price of a futures contract. It accounts for holding costs, appreciation and demand for the good.
• Dividends - although dividends should not matter, higher yielding companies outperform lower yielding companies significantly. This applies even to countries! Since 1975, high-yielders have outperformed low-yielders in 20 of 21 countries by an average of 4.4% / year
  

Futures / Swaps

• Interest rate swap - swap one set of cash flows for a different set of cash flows. Ie: hedge fund receives fixed bond coupon payments from company A at some rate. They want to convert it to a variable rate. They enter a swap agreement with someone that is currently receiving a floating rate.
  =>Interest rate swap can be fixed for floating or floating for floating in the same or different currency
  
• Hedge Fund => currently receives 8.5% bond from somewhere
• CompanyA => currently receives Libor+.5% from somewhere
• They swap => Hedge fund pays 8% fixed bond to CompanyA and receives Libor+.25% from CompanyA
• Hedge Fund new rate => 8.5% - 8% + Libor +.25% = Libor + .75%
• CompanyA => Libor + .5% - (Libor + .25%) + 8%
• Futures - obligation to buy/sell a a specified asset at a fixed date. For intangible assets, futures are 'cash-settled'. This enables many financial products to be traded such as interest rate futures (lock in a specified interest at some time in the future) to cricket match runs (expected # of runs on today's date vs when the match is actually played and finished)