Transitive risk: Measure the impact of a rate rise in your portfolio

Posted: Feb. 10, 2018 -

The Fed is starting its massive balance sheet unwind. Given the current economic recovery and inflationary pressures, higher yields need to be paid on those treasuries in order to entice new holders. Last week the bond auction was already met with lukewarm demand, triggering the 10-year yields to reach a 4 year high.

Many market players had anticipated this moment, but the speed and magnitude of rate rises might surprise. Volatility is back.

Therefore, measuring the impact of a rate rise in your portfolio is critical at this juncture.

Most risk systems approach this somewhat simplistically: a rate rise propagates only to fixed income securities that depend on rates for their pricing. Equities would not show any PL impact.

Conversely, more sophisticated systems have the capability to propagate the rate risk to all securities in the portfolio. These systems are called transitive.

Everysk is transitive. It computes how an exogenous (or endogenous) shock propagates to ALL securities in the portfolio. The math and calculations to do so are not trivial. The computational power to quickly crunch these numbers is also significant.

Below, we show how a 1% rate hike in the 10 year treasury would instantaneously impact $1 invested in each security:


Security Expected P&L
GS +7.18%
XLI -0.26%
CORP:CATM 20220801 5.125 89 -2.16%
IBM -3.03%
NESN:XVTX (CHF investor) -9.43%
NESN:XVTX (USD investor) -12.16%
XLU -12.82%


Some remarks on the table above:

As expected, the utilities ETF (XLU) has a larger negative PL impact from a rate hike, compared to the industrials ETF (XLI)

Banks (GS) tend to benefit from higher rates

The swap above pays fixed, receives floating and therefore benefits from higher rates, which is captured via Libor vs. Treasury correlation

Nestle, traded in Europe has a higher risk for a USD investor. The USD tends to appreciate against other currencies when treasuries sell-off. The investor with USD as base currency is effectively short USD as her/his money is parked in a Swiss Franc asset. Everysk captures all the currency effects in the results.


To understand our symbology, please refer to: Symbology.


To review our supported global exchanges please refer to: Supported Exchanges.


It is trivial to check the impact of a rate hike in your own portfolio using our REST API. Please visit us at: www.everysk.com/api.