BitMEX Blog

The more credit risk a lender is willing to take, the higher the interest rate that lender will demand from the borrower. The longer the time to maturity of a given bond, the more interest rate or duration risk that bond has. Duration risk also changes based on the level of interest rates, which means the relationship between duration risk and a given level of interest rates is not constant. Of course the banks could have hedged their interest rate exposure by trading interest rate swaps. Any small increase in the general level of interest rates would lead to massive mark-to-market losses on banks’ bond portfolios.