The collateral is invested in plain vanilla Treasury bills, right ? Or are they invested in TIPS ?
the margin is invested in Treasuries.
^Agree. You earn the collateral yield by placing 100% of the value in Treasuries.
My reference is a question in CFA Freebie exam, where one guy makes a statement that in addition to the commodity spot return, the collateral yield is a inflation-hedge too. And apparently, he is correct.
He’s just saying that rolled T-bills should provide a return that is something like inflation. However, if you wanted to get TIPS returns on collateral every big bank in the world would be happy to do a T-bill/TIPS index swap.
^ Thanx. Makes sense.
sources of return from commodities: 1. spot return 2. roll yield (only positive when in backwardation) 3. collateral yield. sorry I couldn’t help myself.
Gold star.
yey! from you that means a lot…